Leverage (Multiplier)

Leverage can increase potential returns and also increases the level of risk associated with the investment.

For example, if a trader wanted to buy $10,000 worth of a stock but only had $1,000 in their trading account, they could use leverage to increase their buying power. If the broker offers a leverage ratio of 10:1, the trader could borrow the additional $9,000 from the broker and buy the stock at the full $10,000 value.

It is important for traders to use leverage carefully and only when they fully understand the risks involved. Traders should also be aware of the margin requirements set by their broker, which dictate the minimum amount of equity that must be maintained in the trading account at all times in order to avoid a margin call.