Trading using Leverage on eToro

How leverage trading on eToro can amplify your potential gains, but also increase your risks. Learn to use leverage wisely and understand its implications.

🤔 Understanding Leverage

💡 What is Leverage?

Leverage is a trading mechanism that allows you to trade with borrowed funds from a broker, increasing your market exposure and amplifying potential success or losses. It enables you to open larger positions with a smaller initial investment.

🎲 How Leverage Works

Imagine you have $1000 to buy some stocks. You buy them without using any extra help (this is called no leverage, or x1). If the stock price goes up by 1%, you earn 1% more money, which is $10.

📈 Without Leverage (x1) 📈 Investment: $1000 Stock Price ↑ 1% ➡️ Profit: $10

Now, let’s say you use extra help called “leverage” (x5). It’s like borrowing money from a broker to buy more stocks. So, if the stock price goes up by 1% again, this time you make 5% more money, which is $50.

🚀 With Leverage (x5) 🚀 Investment: $1000 Stock Price ↑ 1% ➡️ Profit: $50

🚀 With Leverage (x5) 🚀 Investment: $1000 Stock Price ↑ 100% ➡️ Profit: $5000

But be careful! If the stock price goes down, you can lose money faster with leverage.

📉 With Leverage (x5) – 1% Loss 📉 Investment: $1000 Stock Price ↓ 1% ➡️ Loss: $50

📉 With Leverage (x5) – 100% Loss 📉 Investment: $1000 Stock Price ↓ 100% ➡️ Loss: $5000 😨?!…

However, it is important to note that many brokers such as etoro have risk management measures in place to protect both the investor and the broker. These measures may include a margin call or automatic position closure to prevent losses from exceeding the initial investment. More on the margin call with etoro later in this article.

🔍 Leveraged Trading on eToro

📈 Leverage Levels for Different Assets

eToro offers various leverage levels for different assets. For stocks, you can choose between x1, x2, and x5 leverage.

Currency pairs offer leverage levels of up to x30.

While cryptocurrencies allow x2 leverage, and commodities can be traded using x10 leverage.

⚠️ Proceed with Caution

While leverage can increase your potential success, it can also amplify your losses. Use leverage cautiously, especially during periods of increased market volatility. Make sure to familiarize yourself with trading basics and strategies, and practice before using leverage in real-money trading. But once you learn how to trade using leverage, it may offer you quite substantial potential benefits in your trading as it allows for great flexibility and can be used in your personalized strategy.

🔔 Margin Calls and Cash Equity

🚨 Margin Call

A margin call occurs when the value of your account falls below the minimum margin required for leveraged trading. You’ll receive a notification asking you to deposit additional funds or close your positions. Maintaining sufficient cash equity helps you avoid margin calls. In case you cannot afford to deposit more, there is also an option to close your positions.

As you explore leveraged trading on eToro, always be aware of the associated risks and potential capital losses. Good luck, and trade wisely!

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GENERAL RISK WARNING

• ▸eToro is a multi-asset platform that offers: Stocks, Crypto assets, and CFDs.
• ▸CFDs are complicated and can make you lose money quickly because of leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. Think about if you understand how CFDs work and if you can afford to take the risk of losing your money.
• ▸Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
• ▸Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
• ▸Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
• ▸eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity-specific information about eToro.

Be warned!

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Author & Expert Trader - Financial Analyst :

My name is Bart Bregman and I am a full-time professional trader with nine years of experience. I specialize in shorter-term trading using technical analysis, and I have extensive experience with Stocks, CFDs, Options, and Crypto trading. I believe that there is no such thing as a bad trade. I'm currently traveling the world as a digital nomad trader. You can follow my journey on Instagram at https://www.instagram.com/bart_bregman/