What is leverage and how does it work?
Written by Matt Allen - Published 15th July 2026
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KEY TAKEAWAY Leverage lets you gain exposure to the full value of a trade while putting down only a fraction of that value, called margin. It magnifies both profits and losses in equal measure, which is why leveraged products carry a high risk of losing money rapidly. 61% of retail investors lose money when trading spread bets and CFDs with this provider. |
What is leverage?
Leverage is a tool that lets you open a position with a value greater than the deposit required to open it. Instead of paying the full value of a trade upfront, you deposit a percentage of it — known as margin — while gaining exposure to the full position size.
Spread betting and CFD trading are both leveraged products. This is what allows a relatively small amount of capital to control a much larger trade. Because your exposure is based on the full position rather than your deposit, both your profits and your losses are calculated on that larger amount.
How does leverage work? A worked example
Suppose a share is priced at £10 and you want exposure to 1,000 shares — a position worth £10,000. Rather than paying the full £10,000, a leveraged trade might require you to deposit 20% as margin: £2,000.
|
Scenario |
Without leverage |
With leverage (20% margin) |
|---|---|---|
|
Capital required |
£10,000 |
£2,000 |
|
Exposure |
£10,000 |
£10,000 |
|
If the price rises 10% |
+£1,000 (10% of capital) |
+£1,000 (50% of capital) |
|
If the price falls 10% |
−£1,000 (10% of capital) |
−£1,000 (50% of capital) |
The profit and loss in pounds are identical, but relative to the capital you put down, leverage has multiplied the outcome fivefold in both directions. That symmetry is the essential point: leverage never magnifies gains without magnifying losses by the same factor.
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QUICK FACT Leverage doesn't just multiply your profits — it multiplies your losses by exactly the same factor. A modest move against a highly-leveraged position can cost far more than the same move would without leverage. |
What is a margin deposit?
Margin is the deposit you put down to open and maintain a leveraged position. It is expressed as a percentage of the full position value, and the percentage varies by market — more volatile markets typically require more margin. If your position moves against you and your account no longer holds enough to cover the margin, you may receive a margin call asking you to add funds or close positions.
What are the risks of leverage?
The central risk of leverage is that losses are calculated on the full position size, not on your smaller deposit. A market move against you can therefore erode your capital far more quickly than the same move would on an unleveraged position. Retail clients benefit from negative balance protection under FCA rules, meaning you cannot lose more than the funds in your account.
This is why understanding risk management matters before trading on leverage. Tools such as stop-losses and guaranteed stops are designed to limit how much a position can lose.
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IMPORTANT TO KNOW Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 61% of retail investors lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. |
How can you manage leveraged risk?
Spreadex provides tools designed to help manage leveraged risk, including stop-losses and guaranteed stops to cap potential losses, and low minimum stake sizes that allow positions to be opened with limited exposure. Maintaining sufficient funds in your account also reduces the likelihood of positions being closed due to insufficient margin.
Frequently asked questions
Can you lose more than your deposit when using leverage?
Retail clients cannot lose more than the funds in their account, as FCA rules provide negative balance protection. Losses can however exceed the initial deposit on a specific trade and deplete your account rapidly. Professional clients do not receive negative balance protection and can lose more than their deposit. 61% of retail investors lose money when trading spread bets and CFDs with this provider.
What leverage does Spreadex offer?
Retail leverage is capped under FCA rules at margin rates that vary by asset class: 3.33% for major FX pairs (30:1), 5% for major indices and gold (20:1), 10% for commodities and minor indices (10:1), 20% for individual shares (5:1) and 50% for cryptoassets (2:1). Professional clients may access higher leverage but without certain regulatory protections, including negative balance protection.
Is leverage safe for beginners?
Leverage increases risk because it magnifies losses as well as profits, and you should ensure you fully understand how leveraged products work before trading. Spreadex offers protections and tools relevant to newer traders, including low minimum stakes, stop-losses and guaranteed stops, and retail clients receive negative balance protection under FCA rules.
