Leverage is an investments technique that is used by investors to increase the profitability of their investments. Leverage involves using financial dept to boost the initial deposited used to trade financial instruments. To understand how leverage works let’s assume that you want to trade an asset X and your broker offers you the leverage of 1:100. This means that your broker is willing to lend you $100 for every $1 you will invest hence assuming that stock X is of the value of $1 then instead of buying 1 share you will be able to buy 101 shares for the price of $1. Now if stock X moved up to be of the value $2 per share then you have made $202 in profit instead of $1. However if X dropped to $0.5 per share then you have a loss of $50.5 instead of $0.5.

In other words leverage is a great power that could work with or against the broker depending on how good the trade is. It is simply a way to increase both profit and risk. Leverage can be created through options, futures, margin and other financial instruments. When it comes to using leverage I recommend matching the leverage to the level of certainty/uncertainty of the trade and keeping the size of the trade reasonable. I also think that all investors and traders should stay away from brokers offering constant leverage that cannot be adjusted and always use a good risk management plan to achieve funds security.