What is leverage on eToro?
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Leverage is a way to magnify your trading gains and in our eToro review, we explain the basics of it on the platform. This guide looks deeper at what leverage is on eToro, how to use it, and how much is available.
What is leverage on eToro and how does it work?
Leverage on eToro works in a similar way to many other brokerage platforms. eToro makes it very easy to use leverage and traders can choose the amount they want to use for each trade. Before we explain how leverage works on eToro, it will be helpful to understand what it is.
What is leverage?
Leverage allows you to make trades with more money than you have in your eToro account. It is like a loan, where you put down a certain amount of collateral or deposit and eToro will lend you more money to place a larger bet. How much money eToro will lend you depends on a few factors, such as the asset you’re trading.
It is not the same as margin, which is the amount of money you need to deposit into your eToro trading account to make a trade. Margin is the collateral and leverage is the loan. Leverage is quoted as a ratio. The first number will be how much you can borrow, and the second will be 1 (the amount you need to deposit to borrow the first number).
How does leverage work on eToro?
The easiest way to explain how leverage works on eToro is through an example.
- A trader invests $100 into a stock on the eToro platform with no leverage.
- The stock moves up by 10% and the trade is closed.
- The trader makes a profit of $10 without using leverage.
On eToro, it is possible to choose the amount of leverage you want to use for each trade. Here’s an example explaining what happens when you select x5 leverage.
- A trader invests $100 into a stock using x5 leverage.
- The stock moves up by 10% and the trade is closed.
- The trader makes a profit of $50 or 50% of their initial investment.
Using leverage on eToro can positively impact your trades if they are profitable and it is possible to make a large profit from little investment. Leverage can also work against you when you are wrong and your losses can be magnified.
How to use leverage on eToro
On eToro, you can change the amount of leverage you want to use for each individual trade. There is also an option to use no leverage at all. Its trading platform is very user-friendly and using leverage takes very little time. Below are the steps you need to follow to use leverage on eToro.
- Log into your eToro trading account.
- Use the search bar to find the asset you want to trade.
- Click the trade button to open an order ticket.
- Select buy or sell at the top of the order ticket.
- Enter the trade details and select the amount of leverage you wish to use. (this amount will vary depending on the asset you are trading).
- Click open trade.
Your trade will now be open using the amount of leverage you selected. In the example above, we selected x5. If you want to trade on eToro without leverage, you simply have to select x1, allowing you to open a position without borrowing any money to fund it.
How to change leverage on eToro
If you want to change the amount of leverage for each trade, you will have the option to do so when you open an order ticket. Each asset class has different amounts of leverage available. Your location will also have an impact on the amount of leverage you can obtain. In the image below, the area highlighted in red shows where you can change your leverage settings.
Will I be charged any fees to use leverage on eToro?
Leverage is freely available to all users of eToro if they live in a region where it is permitted. There are some locations where leveraged trading is not allowed; likewise, there are some assets on the eToro platform that you cannot use leverage on. There is no specific charge for using leverage on eToro, although you may incur some fees in certain instances.
Rollover is a charge applied to open CFD trades that are kept open overnight or over the weekend. It’s essentially an interest payment on the leverage used and is how eToro makes money through lending to traders. Other than rollover, there are no other charges for using leverage, however, there are other eToro fees that you should be aware of.
Should I use leverage on eToro?
If you have some trading experience, leverage is a good option; however, you should be aware of the risks associated with using it. Leverage is often referred to as a double-edged sword. It can help magnify your profits and allows you to take big trades with small amounts of money. However, if your trades are not profitable, leverage can also magnify your losses.
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