What is Leverage
Leverage is the ability to purchas a large position in a derivatives product with a relatively small amount of capital. Exchanges and brokers provide leverage to their users in the form of a credit line and users pay a small fee of interest in return for borrowing that amount of capital used to boost their contract values.
Example of Leverage
If a user would like to open a position of $1,000 with 100:1 or 100x leverage, then for every $1 being put by the trader, the broker/exchange is providing $99 above that to boost the trader’s position. The $1,000 position of the user will end up having a grand total of $100,000 in contract value.
Pros of using Leverage
- With a smaller amount of capital, traders will have the ability to open larger sized contracts
- Larger profit potential with smaller amounts of capital invested
Cons of using Leverage
- Increased amounts of risk. Leverage is suggested for more experienced traders with risk measurements in place to protect against adverse market conditions
- With more capital, comes more responsibility and traders must keep track of their open positions either manually or through the use of automatic trading software.
How Leverage works on Globe
At Globe, leverage is calculated automatically across all your positions based on how much you have paid for the contracts and how much they are worth now.
- We give users access to up to 100x for trading derivatives
- When you go over that (higher than your initial margin) you can't increase your position - you can only place orders that will decrease your position.
- If your leverage goes too high you will be liquidated.
- If you are liquidated, Globe's insurance fund will cover any losses to bring your account back to 0 - you will never owe Globe money.