Leverage is more than just a buzzword in the trading world; it's a strategic approach where an investor, like you, can invest in financial products using borrowed funds from a broker, such as eToro. The primary goal is to maximize potential returns. In simpler terms, leverage allows you, the trader, to open a position in a larger trade while only committing a smaller amount of your own money.
To delve deeper into using leverage on eToro and understand its nuances, I've prepared a thorough guide based on my personal experience with this trading parameter on the platform. In this guide, you'll find practical examples and insights that I'm eager to share with you.
76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
When you apply leverage to your trade on the eToro platform, the amount you use directly increases your exposure to a financial instrument. Essentially, increasing the level of leverage in a trade allows you to amplify your exposure to the instrument in proportion to the leverage ratio. For instance, opting for X5 leverage instead of X2 significantly raises your market exposure.
To illustrate this concept more clearly: The number next to the "X" in the multiplier indicates the extent to which you're increasing your buying power relative to your initial investment. So, if you choose X2 leverage, you're essentially doubling your buying power compared to your original trade amount.
When engaging in trading on the eToro platform, you'll encounter the Leverage section, which defaults to X1. But what is X1 leverage in eToro, and what implications does it have for your trading?
In simple terms, X1 leverage signifies the baseline leverage level for any asset, implying that no actual leverage is applied. This default setting is ideal for traders who prefer to avoid using leverage in their transactions. By leaving it at X1, you're essentially trading with your own capital only, without any amplification of your investment.
It's important to note that all assets on the platform can be traded without employing leverage, meaning the default minimum leverage for any instrument or product is X1. Essentially, this indicates that the amount you're trading with is not increased or multiplied, allowing for trading with the actual value of your investment.
The maximum leverage you can apply varies depending on the type of financial instrument you are trading and the specific eToro entity your account is registered with.
For instance: If your account falls under eToro (Europe) Ltd and you wish to trade Gold, the highest leverage available for that particular instrument is X20. This means that the leverage limits are tailored to both the asset class and the regulatory framework of the eToro entity managing your account.
eToro (Europe) Ltd
eToro (UK) Ltd
eToro AUS Capital Limited
|Major currency pairs
|Non-major currency pairs
|Commodities (except Gold)
|Non-major equity indices
|eToro (Seychelles) Ltd
|Major currency pairs
|Non-major currency pairs
For traders wondering about the availability of leverage for USA clients, it's crucial to understand that leveraged eToro trading is not offered to them.
Due to regulatory compliance and restrictions, this feature is not enabled on any platform operating under eToro USA LLC. This means that US residents must trade without the use of leverage.
For those interested in trading with higher leverage, it is possible, but only under certain conditions. I discovered that increased leverage levels are accessible exclusively to accounts classified as Professional clients.
To qualify as a Professional client: You must meet specific criteria, demonstrating sufficient trading experience and knowledge.
The higher leverage options available for Professional accounts include:
⚠️ Remember: These are very high numbers!
While these elevated leverage levels offer more significant market exposure and may give you that feeling of elation, I strongly emphasize and reiterate that they also come with increased risks. Thus, these reserved for traders who have proven their proficiency and understanding of the financial markets.
Knowing how to use leverage on eToro is crucial if you intend to implement this strategy in your trading. The process of applying leverage when opening a trade is straightforward.
Here's how you do it: In the trading window, simply click on 'Leverage', select your desired leverage size, and then, after finalizing your preferences, click 'Open Trade' to initiate your leveraged position.
This ease of use makes leveraging an accessible tool for traders looking to potentially enhance their market exposure on the eToro platform.
It's crucial to recognize that any form of leveraged trade on the eToro platform is executed through Contracts for Difference (CFDs). This means that the costs associated with leveraged trading are primarily in the form of spreads and overnight fees. It's essential to factor in these costs when considering leveraged trading.
Through my experiences, I've realized that using leverage does not inherently alter my trading decisions. This means that even if I continue trading as I did without leverage, my win-loss ratio remains consistent. However, the key difference lies in the magnification of both potential profits and losses, and that the stakes are higher with leveraged trading.
The bottom line is that leveraging in your trades demands meticulous planning and a clear understanding of the risks involved. I hope this guide has provided valuable insights into leveraging as a strategy. As I've emphasized repeatedly, it's important to approach leverage with caution due to its ability to significantly amplify risks.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high 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. Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
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.
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