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 — and losses can exceed your initial deposit — which is why leveraged products carry a high risk. 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 worth far more than the money you put down 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 can exceed the money you deposited. Because you are exposed to the full position size, a market move against you is calculated on that full value, not on your smaller deposit. Rapid market moves can therefore produce losses larger than you might expect from the capital you committed.
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?
You can reduce the risks of leverage by trading smaller position sizes, using stop-losses to cap potential losses, keeping enough funds in your account to absorb adverse moves, and only risking capital you can afford to lose. Practising on a demo account first can also help you understand how leveraged positions behave before committing real money.
Leverage - Frequently asked questions
Can you lose more than your deposit when using leverage?
Yes. Because leverage gives you exposure larger than your deposit, losses can exceed the amount you put in unless you use a guaranteed stop. 61% of retail investors lose money when trading spread bets and CFDs with this provider.
What leverage does Spreadex offer?
Leverage varies by market and client type. Retail leverage is capped under FCA rules, with the maximum depending on the asset class. Professional clients may access higher leverage but without the same regulatory protections.
Is leverage safe for beginners?
Leverage increases risk because it magnifies losses as well as profits. Beginners should understand it fully, start small, and use risk-management tools such as stop-losses before trading on leverage.
