Example Leverage

Suppose that the FTSE is now at 5000, the margin is 1%, i.e. 50 you need to deposit and you are long. This gives you a leverage of 100, meaning that you move a total value 100 times larger than your initial outlay.

Should the market move by 1% to 5050, you would have made a profit a 100 % (by investing 50 you gain 50). This may also work the opposite way. If the market moves down by 1%, to 4950, you lose 100% of your initial capital. i.e. 100% of your investment.

The application of leverage magnifies the price movements in the markets. It can magnify both the profits as well as losses. The losses can exceed your initial outlay.