Published November 1, 2026 · Beginner education
THE IDEA, IN PLAIN LANGUAGE
Leverage creates exposure larger than the money committed to a position. It magnifies gains and losses relative to that money. Depending on the product and jurisdiction, losses can exceed the initial amount; protections vary.
KEY VOCABULARY
- Leverage
- Exposure relative to capital committed.
A PRACTICAL EXAMPLE
With illustrative 10:1 exposure, $100 supports a $1,000 position. A 1% adverse move is about $10 before costs, or 10% of the $100.
A COMMON MISTAKE
Choosing the maximum leverage offered because it is available.
WHAT TO REMEMBER
Small market moves can create large account losses when exposure is high.
SOURCE REFERENCES
Use these external resources to study further. Explanations here are our own; external resources may change.
- BabyPips: related source lesson ↗
- BabyPips: School of Pipsology — beginner forex curriculum ↗
- CFTC: understand forex risks ↗
RELATED VIDEOS
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