⚠️ $325,000,000 in leveraged crypto long positions liquidated in…
⚠️ $325,000,000 in leveraged crypto long positions liquidated in just 30 minutes.
Risk management
What is leverage in trading, and why is it risky?
Last reviewed:
Short answer
Leverage means trading a position larger than the money in your account, using the broker's or exchange's funds. With 1:100 leverage, Rs 10,000 controls a Rs 1,000,000 position, so a 1% price move gains or loses Rs 10,000 — your entire deposit. Leverage does not improve your odds; it only multiplies the size of every win and loss.
Leverage in numbers
EUR/USD often moves 0.5% to 1% in a day and gold more than that. At 1:500, an ordinary day's movement can close your account.
| Leverage | Deposit | Position size | Price move that wipes out the deposit |
|---|---|---|---|
| 1:1 (no leverage) | Rs 100,000 | Rs 100,000 | 100% |
| 1:10 | Rs 100,000 | Rs 1,000,000 | 10% |
| 1:100 | Rs 100,000 | Rs 10,000,000 | 1% |
| 1:500 | Rs 100,000 | Rs 50,000,000 | 0.2% |
Margin, margin calls and stop-outs
The deposit needed to open a leveraged position is called margin. If the trade moves against you, your account equity falls. When it drops below a maintenance level you get a margin call — add funds or reduce the position. If it keeps falling, the broker automatically closes positions at the stop-out level, locking in the loss.
On fast moves (central-bank decisions, weekend gaps), prices can jump past your stop-loss, and some brokers can leave you with a negative balance. Check whether a broker offers negative-balance protection.
Where you meet leverage
- Forex and CFD brokers: often 1:100 to 1:1000 offshore; regulators in the EU and UK cap retail forex at 1:30.
- Crypto futures and perpetual contracts: up to 1:100 or more, plus funding payments every few hours.
- PMEX futures: margin of roughly 10%–25% depending on the contract, which works out to about 1:4 to 1:10.
- PSX margin financing (MTS/MFS): borrowing from a broker to buy shares, with interest.
Using leverage more safely
- Decide your risk per trade first — many professionals risk 1% or less of the account on any one trade.
- Place the stop-loss where the trade idea is wrong, then size the position so that hitting the stop costs only that 1%.
- Ignore the maximum leverage offered; your effective leverage is total position size divided by account equity.
- Never add to a losing leveraged position to "average down".
- Keep extra cash in the account so normal swings do not trigger margin calls.
The Shariah view
Most scholars treat broker-provided leverage as a loan tied to the trade, and interest-bearing margin financing as riba. This is one of the main reasons leveraged forex and crypto futures are widely considered impermissible.
Roman Urdu mein jawab
Trading mein leverage kya hota hai?
Leverage ka matlab hai apni raqam se bari position lena. 1:100 leverage par Rs 10,000 se Rs 10 lakh ki position khulti hai, aur sirf 1% ulta move aap ki poori raqam khatam kar deta hai. Leverage jeetne ke chances nahi barhata, sirf nafa aur nuqsan dono ko barha deta hai. Beginners ke liye jitna kam utna behtar.
Frequently asked questions
What is the best leverage for beginners?
As little as possible — ideally an effective leverage below 1:5. The leverage a broker allows is a maximum, not a recommendation.
Can I lose more than I deposit?
With some brokers and in futures markets, yes: a large gap can push your account negative. Brokers offering negative-balance protection cap the loss at your deposit.
What is a stop-out level?
The margin level, often 20%–50% of required margin, at which the broker automatically closes your positions to stop further losses.
Is margin trading allowed on PSX?
Yes, regulated margin financing exists through brokers under SECP rules, with interest charged. It carries the same risk of forced selling when prices fall.
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