Risk management

What Leverage Is and How It Works in Trading

Astron Team · 09/24/2026 · 4 min read

Leverage is one of the most powerful, and at the same time most misunderstood, concepts in trading. In simple terms, it lets you open a position larger than the capital actually deposited, using a fraction of that capital as margin — a kind of collateral — to back the trade. The rest of the position's value doesn't come out of the trader's pocket, but it amplifies both the positive and negative result in the same proportion.

How leverage works in practice

A 1:10 leverage, for example, means that for every R$ 1 deposited as margin, it's possible to control a R$ 10 position. That doesn't change the real market exposure — the financial result is still calculated on the position's total value, not on the deposited margin — but it drastically reduces the capital needed to open that position.

A complete numerical example

Suppose an asset priced at R$ 100, and a trader who deposits R$ 200 in margin to open a 1:10 leveraged position, effectively controlling R$ 2,000 in exposure, or 20 units of the asset. If the price rises 5%, to R$ 105, the gain on the position is R$ 5 per unit × 20 units = R$ 100 — equivalent to a 50% return on the R$ 200 deposited as margin, even though the asset only rose 5%. If, instead, the price falls 5%, to R$ 95, the loss would be R$ 100, also 50% of the deposited margin. This is the core of leverage: it multiplies the percentage return on the margin capital, up and down, at the same intensity.

The role of margin and the risk of a margin call

Margin works as a minimum collateral required to keep the position open. If the market moves against the position enough that the accumulated loss approaches the amount deposited as margin, the broker may issue a margin call, asking for an additional deposit, or close the position automatically to prevent the loss from exceeding the capital available in the account. Understanding this mechanism avoids the surprise of seeing a position closed automatically during a sharper market move.

Why leverage demands more risk discipline, not less

It's tempting to look at leverage only from the amplified potential-gain side, but the same mechanism amplifies the potential loss in the same proportion. Because of that, the higher the leverage used, the smaller, proportionally, the position size relative to total available capital should be, to keep the risk in money within a limit equivalent to what would be taken on in a trade with no leverage at all.

How to size the risk when using leverage

A practical way to think about this is to always calculate the risk in money from the distance between the entry price and the stop, multiplied by the position's total size (already accounting for leverage), not from the deposited margin amount alone. Going back to the earlier example, with the 20-unit position at R$ 100, a stop at R$ 97 would represent a risk of R$ 3 per unit × 20 units = R$ 60, regardless of how much was deposited as margin to enable that position.

Leverage isn't, by itself, good or bad

The tool itself is neutral: it only amplifies the result, whether positive or negative, at the proportion used. What determines whether its use was responsible or not is whether the resulting position size respected a risk limit set before the entry, considering the worst possible scenario, not just the desired one.

Different leverage levels for different assets

It's common for brokers to offer different leverage levels depending on each asset class's typical volatility — usually more conservative for historically more volatile assets, like some cryptocurrencies, and higher for traditional currency pairs, with proportionally smaller daily moves. Understanding this difference helps avoid applying the same risk reasoning to assets with quite different behaviors.

Practical conclusion

Leverage multiplies market exposure from a smaller amount of capital, and because of that it also multiplies the risk of loss in the same proportion as the potential gain. Using it requires calculating the risk in money considering the leveraged position's total size, not just the amount deposited as margin, and adjusting that size to keep the risk within a previously defined limit — never more than what the person is actually willing to lose on that trade.