Leverage

Leverage is the use of borrowed capital provided by a broker in the form of margin to take a position in a security that is larger than what the investor's own funds would otherwise allow. By amplifying exposure, leverage magnifies both potential gains and potential losses. For example, with 5x leverage, a 10% move in the underlying asset translates into a 50% gain or loss on the invested capital. In India, leverage is available on intraday equity trades, futures contracts, and currency derivatives. While leverage can significantly enhance returns in favourable conditions, it is equally unforgiving when trades move against the investor making position sizing, stop-losses, and risk management absolutely critical for any trader using borrowed margin.