Leverage allows one to seek magnified percentage returns on an investment by using borrowed funds, margin accounts or buying securities which require payment of only a fraction of the underlying security's value, such as rights, futures, warrants or options.
Leverage is of course a double-edged sword as a small price movement on a leveraged product can lead to large losses in a short time. Traders who are undercapitalised often use leverage unwisely, risking too high a percentage of their capital per trade, often with the result that they lose a large percentage of their pot in just a few trades.
Futures: The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded (also referred to as "lot size" or "contract value") is Ã‚Â£100,000 and the required margin is Ã‚Â£2,000, the trader can trade with 50 times leverage (Ã‚Â£100,000/Ã‚Â£2,000).