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Leverage is the ratio measuring how much money is being used as collateral versus how much actual asset is being purchased. A leverage ratio of 1:1 means no leverage is being used, while a leverage of 1:100 means the trader controls 100 times as much of an asset as the money he is investing.

For example, if you buy gold at $1,300 an ounce with 100 times leverage of 1:100 you would only need to put up $13 for each ounce of gold you control. While this can greatly magnify profits it can also greatly magnify losses.

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