eToro Leverage - Learn How to Use Leverage in Your Trades

Through leveraging, you can increase the amount of the potential gains of your investment through increased capital. For example, if you invest $1000 into a stock position without any leverage i.e. x1 leverage. 

A 1% increase in your stock will lead to a 1% increase in your profit, i.e. a $10 increase. If you decide to take a x5 leverage and the stock increases by 1%, your profit will also increase to 5%, leading to a $50 gain. However, if the price goes down, then leveraging will increase your losses. 

How to Use eToro Leverage

Basically, leverage is used to increase the trade size. For example, selecting a x20 leverage on a $100 investment will lead to a $2000 trade size. Most investors commonly use leverage for stock trading.  However, leverage can also be used when trading currencies, ETFs, commodities, and cryptocurrencies. Each instrument has its maximum limit which is set by financial regulators. 

eToro USA LLC does not offer CFDs, only real Crypto assets available.

To use leverage on eToro, the first thing to do is to choose the asset you want to trade after signing in to your account. It is important to note that each instrument has its own leverage limit. After selecting the asset you want to trade, a window will appear, displaying the trade parameters. You can choose whether you want to Sell (Short) or Buy (Long) on the tab placed at the top of the screen. 

The next step is to enter the amount you wish to invest, then adjust the leverage multiplier. If you prefer to trade without using leverage, you can leave the multiplier at x1. To reduce the risks to your investment, you can choose the Stop loss and Take profit limits. Once everything is set, click the ‘Open Trade’ option.

What is the Minimum and Maximum Leverage on eToro?

The minimum leverage on any asset is x1, meaning no leverage at all. This is the default option for traders who do not want to use the leverage option. For stock trading, there are leverage options of x1, x2, and x5 for long and short positions. 

This also applies to ETFs and Securities. For cryptocurrencies, the maximum leverage is x2. Commodities apart from Gold and certain equity indices have a maximum leverage of x10. Big currency pairs allow leverage of up to x30. 

Professional account holders may have access to higher leverages such as x50, x100, or x200. However, you’ll need to meet certain requirements to qualify for high leverage trading.

It is important to note that traders in the United States do not have access to leverage trading on eToro, due to trading regulations. 

Risks of Trading with Leverage on eToro

Though leverage provides the option of increasing your potential profit, it can also increase your losses if things go south. Before using leverage on eToro, it is important to understand the risks and market conditions. It is not advisable to use leverage when there is high market volatility. 

To reduce the risk to your investment when using leverage, there are certain strategies to use. First, the Stop Loss option allows you to minimize the risk to your investment if the market goes to an amount against your position. 

Take Profit allows you to set a value at which your position will close automatically once you reach a certain profit level. The negative balance protection option enables eToro to protect your account from having a negative balance due to market conditions. Instead of your account turning negative, eToro will take the loss on your behalf. 

You should also take into account that, when trading with leverage, you also need to pay an extra fee to eToro, called an overnight fee, if you don't close the trade before the end of the day.

Conclusion

Leveraging is a trading strategy that can help you maximize potential profits. However, it has certain risks as your losses may be amplified as well if your investment loses value. It is advisable to only use leverage when the market conditions are favorable or when there is a clear advantage. Risk management tools such as Stop Loss, Take Profit, and the Negative balance protection can help minimize the risk to your investment when using leverage. 

For more information about the platform, read our eToro review.