CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Leverage definition

Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.

In investing, the amount needed to open and maintain a leveraged trade is called the margin. Trading using leverage is sometimes referred to as margin trading.

Leverage is available on several financial products, including spread bets, CFDs and forex trades. When trading using leverage, the provider will only ask for a fraction of the total value of your position: the rest is effectively lent to you by the provider.

Profits and losses are based on the total size of the position, so the end result of a trade can be much larger than the initial outlay. Losses can end up exceeding the initial deposit.

Leverage example

You want to open a position on JB Hi-Fi. With IG, you will be margined on the total consideration of the trade.

If the stock is margined at 20%, shares are valued at $22 and you want to trade 500 shares, your margin will be $2,200. This is because margin is calculated as

Number of shares x share price x margin percentage

So 500 shares x $22 per share x 20% = 2,200.

Therefore, when trading on leverage, in order to obtain an exposure equal to 500 shares in JB Hi-Fi, you only need to deposit $2,200 to place the trade instead of paying the full value upfront by buying $11,000 worth of shares in the underlying market. Your deposit requirement will fluctuate with the share price. While you only need to deposit a fraction of the total position size, your profit or loss is calculated based on your position size of $11,000. It is therefore possible to lose more than you deposit.

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Find more about leverage in our education section.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You do not own or have any interest in the underlying asset. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Please consider the Margin Trading Product Disclosure Statement (PDS), Risk Disclosure Notice and Target Market Determination before entering into any CFD transaction with us.

The value of shares, ETFs and ETCs bought through an IG share trading account can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.

Please ensure you fully understand the risks and take care to manage your exposure.

The information on this website is prepared without considering your objectives, financial situation or needs. Consequently, you should consider the information in light of your objectives, financial situation and needs.

This website is operated by IG Australia Pty Ltd. IG Australia Pty Ltd is located on Level 32, Queen & Collins, 376-390 Collins Street, Melbourne, VIC 3000. ABN 93 096 585 410, Australian Financial Services Licence No. 515106. Derivatives Issuer Licence in New Zealand FSP No. 684191, NZBN 9429047618251.

The information on this site is not directed at residents of the United States or any particular country outside Australia or New Zealand and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

Leverage definition

Leverage example

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