Leverage is a financial strategy used by traders and investors to increase their exposure to an asset without directly increasing their capital outlay. By borrowing funds, investors can control a larger position in the market than they could with their own capital alone. This is achieved through the use of margin accounts provided by brokers, where a small initial deposit (known as margin) is required to open and maintain a position.

The degree of leverage is typically expressed as a ratio, such as 10:1 or 100:1, indicating the amount of exposure relative to the initial investment. For example, a 10:1 leverage ratio means that for every $1 of the investor’s money, they can control $10 worth of the asset. While leverage can amplify potential returns, it also increases potential losses, making it a double-edged sword.

Leverage is commonly used in various financial markets, including forex, stocks, commodities, and derivatives. It allows traders to capitalize on smaller price movements by increasing the potential return on investment. However, because leverage magnifies both gains and losses, it requires careful risk management to avoid significant financial losses.