When you use leverage, it carries a higher degree of risk. Leverage increases the magnitude of both gains and losses.
If you use leverage on a trade and the market moves against you, your loss per pip will be greater than if leverage had not been applied.
- If you invest $1,000 with no leverage, for every 1% move in the market you can gain or lose $10, which equals 1% of $1,000.
- If you invest the same $1,000 using X10 leverage, the dollar value of your position would be equal to $10,000. 1% of $10,000 equals $100, so for every 1% move in the market, you can gain or lose $100.