Leverage enables you to enlarge your financial position and increase the potential return of a trade. With us, you can place leveraged trades on a range of financial markets, including:
When you trade with leverage, you deposit a fraction of the full value of the trade to open a position. However, this form of trading amplifies potential profits and losses equally, making it riskier than traditional investing.
In this article, we explore what leverage is, how it works, and how you can use it to increase your exposure to around 12,000 instruments on our award-winning trading platform1.
KEY POINTS
Traders use leverage – essentially a loan from a broker – to increase their market exposure and potentially enhance their profits.
When you open a leveraged trade, you deposit the margin (a small portion of the full value of the position) while your broker lends you the rest. That’s why the process is also known as trading on margin.
The margin can be expressed as a percentage of the full value of a trade. To give a few examples, on our platform the margin rate is 3.3% for forex pairs like GBP/USD and USD/JPY, 5% for gold, the US 30 and UK 100, and 20% for shares.
Leverage amplifies profits on successful trades; equally, it amplifies losses on unsuccessful trades. Given the risks, traders need a risk-management plan.
Simply put, leverage is the use of borrowed money to enlarge your financial position and increase the potential return of a trade. When you spread bet or trade contracts for difference (CFDs) with us, you speculate on the price movements of a given market without owning any underlying assets. When trading these products, you deposit the margin – a fraction of the position’s full value – while we put up the rest of the notional value of the position.
Leveraging your capital in this way amplifies potential profits and losses equally. This is because your profit or loss is based not on the margin – the amount you put up to open the trade – but on the full notional value of your position. As a result, trading with leverage, also known as trading on margin, means you could make large losses if the market moves against you. It’s therefore vital that traders put a risk-management plan in place.
Learn more about our margin accounts
As we’ve just learned, when you open a leveraged trade you deposit the margin and your broker provides the rest of the position’s full value.
If the market moves in your favour, you make a profit based on the full notional value of the position. However, if the market moves against you, you incur a loss based on the full notional value of the position.
That’s what makes this form of trading risky – by increasing your market exposure through leverage, you amplify your potential profits and losses equally.
The leverage ratio or margin rate varies by asset class (for example, forex, indices and commodities) and instrument (examples among forex include EUR/GBP, USD/JPY and AUD/USD).
Our margin rates on forex start from 3.3%, which is a leverage ratio of 30:1. This means you can open a position worth up to 30 times the deposit you put down. The margin rate of 3.3% applies to some of our most popular forex pairs, including EUR/GBP, EUR/USD, GBP/USD, USD/JPY, USD/CAD and GBP/JPY. However, for some other pairs, such as AUD/USD, the margin rate is 5%, or 20:1 leverage, meaning you can open a position worth up to 20 times the deposit you put down.
Our margin rate for many indices – including the UK 100, US 30 and Germany 40 – is also 5%. For example, if a trader had £100 available to trade on the UK 100, they could open a leveraged trade worth £2,000, increasing their exposure to the market by 20 times. The broker would put up £1,900 of the total trade size.
Among commodities, the margin rate is 5% for Gold, and 10% for Crude Oil West Texas, Silver, Natural Gas and many others.
For shares, ETFs and share baskets, the margin rate is 20%, while for treasuries – such as the US T-Note 10 YR and UK Gilt – the rate is 3.3%.
For more information, visit our page on financial markets and use the table to compare margin rates by instrument.
Imagine you wanted to buy 1,000 shares of a company at £1 a share. To open a traditional, unleveraged trade with a stockbroker, you’d be required to pay 1,000 x £1 for an exposure of £1,000 (not including fees).
However, with leverage, you’d pay just a fraction of this cost to gain the equivalent market exposure. In fact, because the margin rate on shares is 20%, you’d pay only £200 to open a position worth £1,000. Your potential profit or loss would be based on the full £1,000.
If you went long on your trade and the company’s share price increased by 50p, your 1,000 shares would be worth £1.50 each, or £1,500 in total. If you closed your position at this point, you’d make a £500 profit – two and a half times your initial margin amount of £200.
The reverse would be true if you went long and the share price fell by 50p. You’d incur a £500 loss – again, that’s two and a half times the amount you put down to open the trade. This illustrates the fact that losses can exceed the initial margin amount.
It is the trader’s responsibility to ensure that they have sufficient capital in their account to cover their total margin and any losses they may incur.
At CMC Markets, our maintenance margin level is 50%. This means that if the balance of a trader’s available funds falls to half of the margin requirement for all open leveraged positions on the account, their positions may be closed out. Before that happens, a margin call is triggered at the 80% level. A margin call tells the trader that they need to add more money to their account to keep their trades open, or exit some positions to reduce their total exposure.
To avoid getting a margin call or, worse, hitting the maintenance margin level, it’s a good idea to keep leverage to a reasonable level by managing your position sizes. It’s also sensible to keep your available funds balance well above the margin requirement. For example, if your positions have a total margin of £1,500, having double or triple that amount (or more) in available funds ought to allow for market volatility and reduce your chances of getting a margin call.
Read more about maintenance margin and margin calls.
Our main leveraged trading products in the UK are spread betting and CFDs. Both products are financial derivatives, allowing you to speculate on the price movements of financial instruments without owning any underlying assets, an approach that can bring tax benefits2.
You can learn more about the similarities and differences between spread betting and CFDs here.
As already discussed, trading with leverage brings substantial risks. Here’s a reminder of the key risks and, below, an overview of the steps you can take to mitigate these risks.
Magnified profits and losses: The primary risk is that trading with leverage amplifies potential profits and losses equally. So, while the possibility of increasing your profits may seem attractive, it’s crucial to remember that leverage can just as easily work against you. Even small adverse movements in the price of an instrument you’re trading can result in significant losses. The magnification of both gains and losses is the core risk of using leverage.
⚠️ As we saw in our example above, if the market moves against you, you can lose more money than you put into a trade when using leverage. However, our retail clients have negative balance protection, which means their total losses are limited to the amount of funds in their account.
Margin calls: Another risk of leveraged trading is the potential for margin calls. If the market moves against you, the available equity in your account may drop below our required margin level. You may be asked to deposit more money into your account or close some of your positions. If your available equity falls to 50% of your required margin level, your positions may be liquidated.
Psychological pressures: Given the above-mentioned risks, the pressures of trading may be too much for some people. If the stress of trading with leverage becomes too great, some traders may start to trade on negative emotions, which can result in poor trading decisions. You should only trade if you’re fully aware of the potential dangers. It’s also advisable to commit no more money than you can afford to lose.
The aim of risk management is to minimise potential losses while not surrendering the potential for gains. Although the risks of trading cannot be eliminated, when managed correctly the risks may be kept to a level that you’re comfortable with.
Most traders use a mix of tools and strategies as part of their risk-management plan – a set of rules that guide a trader’s decisions and help them to manage the risks of trading. A solid risk-management plan should consider the following:
Stop-loss orders: A stop-loss order is an instruction to offload an asset automatically if its price moves against you and reaches an exit point that you’ve set. Stop-loss orders, which you can add to all your trades with us, enable you to limit losses if a trade doesn’t pan out as you’d hoped.
Position size: Keep leverage to a reasonable level by managing your position size. If you open a large position relative to your account value, even small declines in the instrument’s price could have a significant negative impact on your account and your ability to continue trading.
Diversification: Don’t put all your eggs in one basket. Spread your risk across multiple assets, sectors and regions to reduce your exposure to market downturns.
You can read more about risk management here.
Leverage enables you to enlarge your financial position and increase the potential return of a trade. When you trade with leverage, you deposit a fraction of the full value of the trade to open a position, while your broker puts up the rest of the trade’s full value. However, this form of trading amplifies your potential profits and losses equally, making it riskier than traditional investing.
Our margin rates range from 3.3% – a leverage ratio of 30:1 – for several currency pairs and treasuries, to 20% – a leverage ratio of 5:1 – for shares, share baskets and ETFs. In between, we offer margin rates of 5% – a leverage ratio of 20:1 – for many indices and Gold, and 10% – a leverage ratio of 10:1 – for commodities such as Crude Oil West Texas, Silver and Natural Gas. Compare our range of financial markets.
When you trade with leverage, you increase your market exposure which means you amplify your potential profits and losses equally. If the market moves against you, you could lose more than your initial outlay. If a margin call is triggered, you may need to add funds to your account or reduce your overall exposure to keep trades open. Find out how to manage risk when trading with leverage.
Because market volatility can exert a sudden, adverse effect on any trade, leveraged trading is generally more suitable for active traders who keep their positions open for a short period. If you’re looking to invest for the long term and can ride out the market’s ups and downs, a hands-off, ‘buy and hold’ approach might suit you better. If that sounds like you, you might wish to consider opening a Stocks & Shares ISA with our sister brand CMC Invest, where you can invest commission-free in thousands of assets, including UK and US shares, ETFs, investment trusts and mutual funds.
When you spread bet or trade CFDs with us, you deposit the margin – a fraction of the position’s full value – to open a leveraged trade. For example, if you trade on shares, which have a margin rate of 20% (a leverage ratio of 5:1), you would put up £200 to open a trade with a full notional value of £1,000. Learn more about margin and leverage here.
1Recent awards include: No.1 for Commissions & Fees & No.1 Most Currency Pairs, ForexBrokers.com Awards 2025; Best-in-class for Overall Excellence, Mobile Trading App, Platform & Tools, Research; ForexBrokers.com Awards 2025; Best Mobile Trading Platform, ADVFN International Financial Awards 2024; Best Forex Broker, Good Money Guide Awards 2023; Best In-House Analysts, Professional Trader Awards 2023.
2Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
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