What Does Leverage Mean for Forex Trading? A Double-Edged Sword
Leverage is the metallurgic side of forex trading, allowing a trader to hold a larger position in the market with a small amount of their own capital. For example, 1:100 leverage means that 100 worth of deposit allows you to hold a position size of 10,000.

This can be very exciting – because a small movement in your direction can yield a decent return. But the same can be said for a small move against you – it could cost you quite a bit of money. This is why leverage is often referred to as a double-edged sword.

How Leverage Works
When you open a leveraged position, you are borrowing money from your broker to expose yourself to the market. Your deposit is the margin to keep the money you simultaneously borrowed.

Example:
You deposit 500 into your trading account.
With 1:50 leverage, you can open positions worth 25,000.
A 1% + move in price will gain you 250, however, a 1% – move in price will cost you 250 which equals half of your deposit.
Understanding Leverage Risk
Leverage can amplify your gains, however, in your broker’s terms and conditions you will read that leverage can wipe out your account faster than you can imagine. Beginner traders will often lose money because they use the maximum leverage their broker offers, thinking it’s the fastest path to big profits. In reality, it’s usually the fastest path to blowing up their account.

Think of leverage like driving a sports car. Sure, it can go 300 km/h, but if you don’t know how to handle the speed, you’ll crash before you reach your destination. In forex, the “speed” is your position size  and the bigger it is, the less room you have for error.