The Core Mechanism of Leveraged Trading
In stock trading, leverage (Hebel) is a quite attractive tool that allows traders to amplify their trading positions using borrowed funds. Rather than being a revolutionary invention, it is more like a double-edged sword in the financial markets—used correctly, it can bring substantial returns; misused, it can lead to disaster.
When you decide to engage in leveraged trading, you only need to invest a small portion of the total position value as margin, and the broker provides the remaining funds. For example, with a 1:10 leverage ratio, investing 100 euros can control a 1,000 euro trading position. This mechanism increases your capital efficiency tenfold—but also amplifies the risk accordingly.
In the field of stock leverage, common leverage multiples range from 1:2 to 1:30 (and can even reach 1:500 in the Forex market). The higher the leverage multiple, the less margin is required, but the risk of loss also increases.