Leverage Explained: What It Changes (and What It Doesn’t)
Leverage myths break accounts. Learn what leverage really changes, how to use it safely, and why position size + stop define risk—not leverage alone.
Leverage is not the enemy. Mis-sizing is. Leverage affects margin and liquidation distance, not your risk rule.
The core idea
Risk per trade is driven by position size and stop distance. Leverage changes collateral efficiency.
The correct workflow
1. Decide risk %. 2. Choose a stop based on invalidation. 3. Calculate position size. 4. Choose leverage to manage margin.
When leverage becomes dangerous
- Liquidation is too close to entry.
- Volatility and slippage are high.
- You rely on stops during fast moves.
- You stack correlated positions.
Practical guidelines
- Use lower leverage in volatile markets.
- Keep liquidation well beyond the stop.
- Maintain margin buffer.
- Reduce size when uncertain.
Tools: