What is Leverage and Why is it Dangerous?

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Protect your capital first: Leverage can magnify gains, but it magnifies losses just as quickly. Always use a stop-loss, keep leverage within a sensible limit, and never risk more than you can afford to lose.

Leverage is borrowed capital that lets you control a position larger than your actual account balance. If your account has $1,000 and you use 10x leverage, you control a $10,000 position.

Leverage amplifies both profits AND losses equally. At 10x leverage, a 1% move in the market becomes a 10% change in your account. This means a small market move in the wrong direction can wipe out a large portion of your balance very quickly.

Example: You have $1,000. You use 50x leverage to open a $50,000 position on EUR/USD. The market moves 2% against you. Your loss = 2% of $50,000 = $1,000. You have lost your entire account on a 2% market move.

On Edgeworth, EdgeGuard monitors your effective leverage on every trade and blocks positions that exceed your configured leverage limit. A disciplined trader uses low leverage — typically 1x to 5x — which is why Average Leverage Used is one of the five Risk Control metrics in Edge Score.