This is a more common question than you may think. Outside trading, it is quite unlikely that you will have come across this term in the same context.
Leverage is the amount of times more than the principal balance that you can invest.
For example, if your balance is $1,000 and you are trading with leverage of 30:1, then you have $30,000 available to invest.
It is important to note though when you are trading on leverage, that this is money that is borrowed from the broker. This does free you up to invest in larger volumes than previously, but you should also think of this as a style of loan, remembering that it does have to be repaid, so this risk level does increase in tandem with the leverage.
Leverage availability varies from country to country based on a number of factors.
A primary influence on this is the regulation in a particular area. In the EU for example, ESMA regulations prohibit the provision of leverage beyond 30:1.
How does leverage work?
As with anything, including trading with eToro and other brokers, a minimum deposit is required. As mentioned above there are also some restrictions in place depending upon the regulatory body that oversees your region.
The function of leverage though is simple, that is to make trading more accessible to every trader in the market. Movements in any particular market can be small, this, therefore, means that in any particular market, you can amplify movements with the use of leverage.
As mentioned above, you suddenly have much more trading power. Even in the case of EU based traders where regulations are firm, a $1,000 balance from you can provide trading of up to $30,000 in value across multiple major trading markets.
Naturally, when trading on leverage, because this is for the most part, not your money, there are a few fees to contend with.
When you are trading any asset on leverage, you are effectively trading them as CFDs, though eToro stock trading does allow for 1:1 trading in major stocks where you can own the assets. Essentially, you are hoping for the CFD value to change in your favor so that you will be left with a profit less your finance and associated costs.
If you are maintaining your positions overnight, you will also be liable for eToro fees on overnight holding which is common among all brokers in the industry. Some may also include additional financing fees although this does not appear to be the case with eToro.
eToro Leverage on different assets
The chart below can be useful if you are looking for precise details on exactly what eToro leverage is available to you under different regulatory bodies and on different assets.
The four regulations which eToro works under can be found in our eToro review, and you can also find a list of countries where eToro does not offer services.
If you still cannot find or do not know which regulatory body oversees your trading account then you can always contact eToro customer support after reviewing the table.
eToro Leverage when trading real assets
Some assets like eToro stock trading as we mentioned above are eligible to be traded with 1:1 leverage. This is essentially with no additional financing at all.
When you are trading like this, you will encounter some benefits such as no markups on the asset price and no need to worry about those overnight fees anymore, you will also own the underlying asset as you are trading with your own funds only.
eToro cryptocurrency and shares are just two examples of assets that can be traded in this non-leveraged manner. If you meet certain criteria, you can also avail of the eToroX crypto wallet service.
What’s Margin on eToro?
If you have utilized eToro leverage at all, then there is no doubt you have also encountered margin.
As you are essentially borrowing money when you use leverage, the margin is a percentage of the total which you should have available in order to open and maintain a leveraged position.
In that case, if you wanted to invest $1,000 in an asset using the leverage of 10:1, you would require $100 which translates to a margin of 10%.
To maintain your leveraged position you also need to have a certain amount available in your principal balance. If you fall below this required level then you will not be able to meet your margin call and risk your position being closed.
Is it possible with eToro to lose more money than invested?
With some less trustworthy brokers or types of trading, it may very well be possible to lose more than you have in your account. Luckily on this front eToro negative balance protection kicks in.
This prevents your account balance from going into a negative position and prompts eToro to close your positions and cover any extra debt amount on your account.
Although the company will not ask you to repay any of the excess losses, you will have, of course, lost your complete balance and it is not a recommended route despite the fact that negative balance protection is provided to all eToro traders.
Risk management is a vital part of trading for anyone at any level. You have to be aware of the risks, your own position, and how to manage the goals of both simultaneously. This note particularly applies if you are engaged in leveraged trading.
There are several ways as an eToro trader that you can avoid reaching the point of having to activate your negative balance protection.
Among these is ensuring that you heed your margin call alerts and deposit more funds or close your positions (but please note that depositing more money and risking to lose even more is rarely the best option). This is the basic first step and question which every trader in the same position should ask.
Another way in which you can ensure that your losses do not pile up is to engage stop losses on your orders. These are simply to apply when placing your trade and they set levels, usually of some loss, where positions will be automatically closed in order to preserve your position to a certain extent.
The bottom line on eToro leverage and leveraged trading, in general, is that it does carry a high degree of risk and is something that you should manage and keep a close eye on throughout.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.
Filippo is the co-founder and CEO of InvestinGoal.com. He has 15 years of experience in the financial sector and forex in particular. He started his career as a forex trader in 2005 and then became interested in the whole fintech and crypto sector.
Over this time, he has developed an almost scientific approach to the analysis of brokers, their services, and offerings. In addition, he is an expert in Compliance and Security Policies for consumers protection in this sector.
With InvestinGoal, Filippo’s goal is to bring as much clarity as possible to help users navigate the world of online trading, forex, and cryptocurrencies.
Trading CFDs, FX, and cryptocurrencies involves a high degree of risk. All providers have a percentage of retail investor accounts that lose money when trading CFDs with their company. You should consider whether you can afford to take the high risk of losing your money and whether you understand how CFDs, FX, and cryptocurrencies work. Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Your capital is at risk. The present page is intended for teaching purposes only. It shall not be intended as operational advice for investments, nor as an invitation to public savings raising. Any real or simulated result shall represent no warranty as to possible future performances. The speculative activity in forex market, as well as in other markets, implies considerable economic risks; anyone who carries out speculative activity does it on its own responsibility.
ADVERTISER DISCLOSURE: InvestinGoal is completely free to use for all. Though we may receive a commission from brokers we feature, this does not impact the results of our reviews or rankings which are conducted with complete independence and objectivity, following our own impartial methodology. Help us continue to provide the best free broker reviews by opening your account with our links. Please read our Advertiser Disclosure to learn more.