Leverage trading allows you to control a larger position in a financial instrument with a smaller initial investment.
Understanding leverage ratios in trading is key, as they determine how much your exposure is multiplied. For instance, a leverage ratio of 1:5 means your exposure is five times your initial investment.
For example, if you're trading XAUUSD (gold) with a leverage of 1:5 and invest $1,000, your total exposure would be $5,000. While leverage increases your potential to earn higher returns, it also significantly amplifies your risk, as losses are magnified in the same way.