Leverage Trading in stocks, bitcoin & CFDs: this is how leverage works/chkd

October 2, 2021
We would like to know: How does leverage trading work? What are levers? And which brokers with high leverage are recommended? In the speculative stock market, one often speaks of leverage trading. It is often said that traders can generate record-breaking profits here, while the risk is also record-breaking.

There are so many different options, features, and products in the world of trading. As a beginner you can quickly lose track of the different ways to trade. Because the stock exchange is a classic trading place for securities and a place where you can speculate with the various options.

In the speculative stock market, one often speaks of leverage trading. It is often said that traders can generate record-breaking profits here, while the risk is also record-breaking.

Because the profit opportunities with stock trading alone are rather small, sooner or later, many traders look around for profitable opportunities. The risk-taking investors then end up with the lever function of the speculative stock business.

Because the speculative stock market risks are so great, this area of ​​trading is often called casino capitalism. Because the speculative securities market really does not have much in common with traditional securities trading because leverage is no longer about investing in a company’s security.

Instead, it is about betting on the price of a company’s stock. The options to bet go in both directions – i.e. based on the price loss and the price increase. Betting on the stock price is only really profitable if you add leverage to this process.

We would like to know: How do levers work? What are levers? And which brokers with high leverage are recommended?

Table of Contents

The classic share purchase vs. trading with leverage shares

The classic process of buying shares is clear. As a retailer, you get information about the different companies, industries and regions. About your ideas with regard to sustainability, profit development and the like, you can then choose exactly the company that corresponds to your ideas of a direct hit.

The next step is then to open an account with a broker. Thanks to the Internet, it’s not that difficult anymore because there is now an unmanageable number of online brokers. An account can be opened here within a few minutes, through which one can then purchase the shares of his choice. The stocks you buy then lie dormant in the portfolio until they are sold again.

Of course, investors hope that the company has done well in the meantime and that the share has risen in value.

It doesn’t matter whether you choose a short-term or long-term trading strategy to generate profits. Either way, a certain amount of time is important in giving the stock time to grow. But you only really profit when you have collected the fees for the depot and the orders through the sale.

Price developments can depend on the company’s balance sheet, a new product, political changes and the like. It is important to know that trading with leverage is about these important price developments, which also play an important role in traditional share purchases. However, the price development itself is important when trading with leverage for other reasons.

What is a lever? Our leverage trading explanation (Wiki):

Trading with levers is not about acquiring shares in a company. Rather, trading with leverage is another option to make profits on the stock market. Leveraged trading is about evaluating the ratio of a share price to the underlying, also known as the underlying.

With a relatively small financial investment, you can now bet on how certain security will develop within a specified time frame. This creates the possibility of making quite high profits with a low financial investment. Because if you are correct with the assumption about the price development, you multiply the money invested many times over.

If, on the other hand, you are wrong with your assumption about the price development, a loss up to and including a total loss cannot be ruled out. Here it becomes clear once again how risky this venture is.

What is a lever? Our leverage trading explanation

An example for a better understanding: The effect of a lever

To answer the question “ How do levers work? “To finally be able to answer, let’s throw an example around. First, a shareholder invests in 10 shares of a company of his choice. Each of these shares costs 10 euros, which results in a total investment of 100 euros.

Now the investment is not yet complete because the next step is to invest in the leverage option. Let’s say this extended trading option costs another 1 euro per share. So the shareholder spends a total of 110 euros.

The extended trading option is the so-called call option. This call option guarantees the shareholder the right to resell these acquired shares at a specified later date for 11 euros. Added to this is the leverage effect of a good ratio of 1:10.

The trader can now benefit from the increase in the share price in a ratio of 1:10. Now the shareholder has invested in three different profit strategies. If the plan works and the share price increases by 10 per cent, the shareholder can sell his shares for a 100 per cent profit.

However, should the underlying value of the share deteriorate within the specified period, i.e. behave contrary to the expected development, the leverage is no longer of much use either. Because the leverage effect can also significantly reduce the income when selling.

Now you can well imagine how high the profits would be if you invested not just 110 euros, but 10,000 euros or more. Because if the assumption about the price development is correct, you get out of the investment with an enormous increase in profit.

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What is Margin & Margin Call in Leverage Trading?

Anyone who works with the function of levers must also know what a margin is. We are now devoting ourselves to this area. You deposit the margin with your broker as a shareholder, especially when you are playing poker with extended trading options.

If you want to secure the right to buy or sell a security at a certain value at a later date, you usually have to deposit a margin. This is a practical safeguard, especially for the broker, if a drastic price decline should result in further costs.

Incidentally, the broker can also request a so-called ” margin call “, i.e. a financial upgrade. This usually happens when the broker can already foresee that the margin provided will not be sufficient for the expected price development. Margin often comes into play, especially with the leverage trading option.

How do you calculate the leverage? Leverage Stock Calculator Formula:

If you want to clarify what levers are, you also have to know how to calculate such a lever. The leverage of a warrant is calculated using several factors: the price of the underlying asset, the subscription ratio and the warrant price.

If you carry out this calculation, you get the information in which ratio the value of the warrant falls or rises if the base value falls or rises by one unit. That is exactly a lever.

In formula, it could look like this:

  • Leverage = price of the underlying asset: (subscription ratio x warrant price)

Direct and effective leverage: What’s the difference?

Direct and effective leverage: What’s the difference?

When asked, “ What are levers? “You also have to clarify the difference between direct and effective levers. We have already explained what the margin is. If you apply leverage concerning margin, then one speaks of direct leverage. However, shareholders also have the option of applying the leverage to the entire portfolio. Then it is an effective lever.

The forms for the effective leverage are as follows:

  • Margin in Euro x (direct leverage: account balance of the portfolio) .

Here it quickly becomes clear which possibilities and risks the effective leverage offers the shareholders. Because usually, the account balance of the portfolio is a lot higher than that of a single share.

The opportunities and risks of trading with leverage

  • Great opportunities to win
  • Little capital investment
  • Speculative investment
  • Total loss possible

For many advanced traders, leverage has become an integral part of everyday trading. This is mainly due to the great profit opportunities that leverage trading brings with it.

Furthermore, it also seems quite tempting that you don’t even have to invest that much capital for these great chances of winning because the leverage itself is usually quite inexpensive to have.

However, the same applies here: the greater the chances of winning, the greater the risks. Trading with leverage is not a form of investment. Rather, it is a speculative investment. High leverage brokers warn traders of the large risks of loss associated with this trading option before entering into this option.

Which leverage is useful?


Which leverage is useful?

Even if there are brokers with high leverage, you don’t always have to choose the highest leverage. At the same time, this possibility seems so lucrative. Rather, as a trader, you should be clear about which strategy you want to use.

That depends not only on how high the actually available investment is, but also on which trading product you are dealing with, how deep your experience is and on which platform you let off steam. According to these factors, it is not always easy to determine the right leverage for trading.

As a basic rule for trading with leverage, it can be stated that the length of time you intend to hold the position should determine the amount of leverage. So, for example, if you only want to open a position for a few minutes or seconds, you can optimise the smaller market movements with a high level of leverage.

But if you want to keep a position open for as long as possible, a small lever makes more sense. After all, you don’t necessarily want to be slowed down by the smaller market movements. Thus, the large levers are particularly popular for shorter periods of time.

Because here, even the smallest price fluctuation can lead to a significant profit. To be clear about the dimensions of trading with leverage: The leverage ranges from a ratio of 1:10 to a leverage ratio of 1: 500!

If you have set a lever and want to change it before the specified time frame has expired, you have the option of doing so with most brokers on the platform itself.

What is the maximum leverage possible?

Lately, a lot has happened in the trading market. Since 2018 there has been an ESMA regulation that hardworking traders should be familiar with. This ESMA regulation is primarily intended for inexperienced traders who, for their protection, do not have access to leverage with a higher ratio of 1:30.

However, this only applies to brokers who are based in the EU. Anyone who relies on brokers for their trading adventures with leverage, who have to refer to the ESMA regulation due to their company headquarters within the EU, initially has no possibility of obtaining power with a higher ratio of 1:30.

Especially for inexperienced traders, the temptation to get involved in leverage with a high ratio is great. After all, the chances of winning are particularly good there.

It looks different if you can be classified as a professional investor. For example, as a professional trader, you have access to leverage functions with ratios much higher than 1:30.

It may also be interesting that it has recently become impossible to use the lever function to get into debt. This is very useful if you weren’t so lucky with the lever. Nevertheless, one should always keep a close eye on which funds are affected in a bad trade.

Leverage in stocks, Bitcoin & CFDs Conclusion – Our tips and recommendation:

Leverage in stocks, Bitcoin & CFDs Conclusion – Our tips and recommendation:

We have now taken a very close look at the leverage trading ecosystem. As a result, we were able to get to know the many advantages and disadvantages of trading with leverage. One of the irrefutable advantages is certainly that such high profits are possible when trading with leverage.

Furthermore, these record-breaking odds are based on relatively small investments. So there is a lot to be gained here, even with a small financial investment. Trading with leverage is also suitable for hedging existing positions.

However, we do not want to hide the disadvantages of leveraged trading. One of the disadvantages is the extremely high risk of loss, which does not exclude the total loss of the entire system. As high as you can go up with the lever, you can also go down as low. Due to the complexity of this trading option, trading with leverage is less suitable for beginners.

Only when you have solid trading experience should you venture into this area. Because the leverage function is rather unsuitable for the classic investment procedure.

All in all, trading with leverage is not suitable for beginners. However, iftof you as a trader would like to start trading with leverage after a while, you should first thoroughly test this trading strategy in the demo mode.


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When trading with leverage, the aim is to evaluate the ratio of a share price about the base value, also known as the underlying. Although the leverage can bring you high profits, at the same time, there is an increased risk of total loss.

In general, more advanced investors should dare to leverage trading. The high risk makes losses likely, but you can also achieve good returns with a little practice and know-how. If you want to trade with levers for the first time, you can do this risk-free with a free demo account, for example, with our test winner.

Brokers licensed in the EU are only allowed to use leverage up to a ratio of 1:30. Internationally, however, there are often almost no limits.

The vast majority of online brokers offer trading with leverage in addition to traditional stock trading. For example, levers cannot be avoided in CFD trading.

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