Leverage works by using a deposit, known as margin, to provide you with increased exposure. Let’s continue with our previous example. Suppose that you currently have $1000, but you feel that is not enough if you aim for 10% return or $100 gain. If you decide to use 10:1 leverage to boost the return of your initial investment, the broker will take your $1 000 and lend you the rest or $9 000. In essence, bumping up your buying power or equity to $10k. Now if you successfully achieved that same return your profit will be $1000 or ten times larger with the use of leverage. Hence, leverage is great as it increases your future profits but also can act as a double-edged sword leading to higher future losses. So, the next question that comes to mind is

HOW MUCH LEVERAGE SHOULD I USE?

Choose the leverage you are comfortable with depending on your experience, financial knowledge, and comfort level.

Obviously, beginner investors should be careful as leverage amplifies your potential gains as well as possible losses.

HOW LEVERAGE TRADING APPLIES TO MULTIPLE ASSET CLASSES

Leverage can be used across a variety of financial markets stocks, indices, forex, treasuries, CFDs, and ETPs. Also, you can use leverage in investing outside your margin account. Leverage exchange-traded funds (ETPs) use borrowed funds to deliver returns of 2x, 3x or even 5x vs their benchmark indices. There are many advantages of using ETPs in comparison to other investment vehicles that use leverage.

Benefits of using ETPs vs other financial instruments.