What you’ll learn
- What leverage in trading really is
- What 2x, 5x, or 10x leverage means
- How leverage affects gains and losses
- What margin means
- How leverage works with options CFDs
Key takeaways
- Leverage lets you control a larger position with less capital
- 5x leverage means €100 can control a market position of roughly €500
- Small price moves have a greater effect on the capital you put in
- Margin is the amount you put up for a leveraged position
- Leverage can also be used with options CFDs
Imagine this
You’re 5 years old. In front of you is a huge box full of toys. You want to lift it.
You push. You pull. You try again.
But the box is much too heavy.
Then someone gets a long board and places a small stone underneath it. Now you push down on the other end.
And suddenly, the heavy box moves.
You haven’t become stronger. You still have exactly the same strength as before.
But the board helps you use your small amount of strength to move something much bigger.
This board is a:
LEVER
And the basic idea works much the same way in trading.
What is leverage? (Explained for kids)
Imagine this:
Your money
is your strength.
The lever
is the board.
The position
is the heavy box.
Without leverage:
€100 → €100 position
With 5x leverage:
€100 → roughly €500 position
You still only put in €100 of your own capital. But you control a larger position in the market.
In short:
Leverage helps you move more with less capital.
That’s it.
No magic.
What do 2x, 5x, or 10x mean?
Let’s stick with your:
€100
Without leverage
You control: €100
With 2x leverage
You control roughly:
€200
With 5x leverage
You control roughly:
€500
With 10x leverage
You control roughly:
€1,000
The greater the leverage, the larger the position you control with your capital.
Just like with the board:
A stronger lever helps you move a bigger box.
How does leverage work in trading? (Explained for kids)
Let’s go back to our example.
You have:
€100
You’re using:
5x leverage
That lets you control a position worth:
€500
Now the market moves.
Case 1: The price goes up
The price rises by: 4%
4% of €500 is: €20
So your position gains:
+€20
You put in €100 yourself.
In this simplified example, a 4% market move means this much for the capital you put in:
+20%
That’s the leverage effect.
Case 2: The price goes down
Now the market falls by: 4%
The same €500 position loses: €20
For the €100 you put in, that means:
−20%
Leverage works in both directions.
It doesn’t change the direction of the market.
It only increases the effect of the move on your capital.
The secret
Maybe you’re wondering:
“Where does the other €400 come from?”
Good question.
With many leveraged products, you don’t have to pay the full value of the position yourself. Instead, you put up only part of it.
That amount is called:
margin
Picture our toy box again.
You don’t have to carry the whole heavy box yourself. You only need enough strength to use the lever. In simplified terms, margin in trading is the amount you put up for the larger position.
What is margin? (Explained for kids)
Let’s use the same example:
€500 position
and: €100 of your own capital
In our simplified example, the €100 is required for this position.
That €100 is the: margin
Margin is not the size of your entire position. It is the smaller amount required to control the larger position.
Here’s how the two terms relate:
Margin = what you put up
Leverage = how much larger your position can be
Simple.
How traders use leverage (Explained for kids)
Traders use leverage when they want to control a larger position with the capital they have.
For example:
You have €1,000 in your trading account, but you don’t want to tie up all €1,000 in one position. With leverage, only part of your capital may be required as margin for a trade. The rest stays available in your account.
Leverage can therefore help you:
- control larger positions
- use your capital more flexibly
- manage multiple positions
- get greater exposure to small market moves
Just like with our board, you don’t get extra strength. You simply use the strength you already have differently.
Real examples: stocks, forex & options
Let’s leave the playground for a moment and look at where leverage can show up in trading.
Stock example
You have: €1,000
Without leverage, you buy a position worth: €1,000
If the price rises by 5%, the position changes by: +€50
With simplified 5x leverage, you would instead control a position worth: €5,000.
A 5% move then equals: €250
Same market. Same move. Larger position.
Forex example
In forex trading, currencies are often traded in large positions. Leverage can let a trader control a much larger currency position with a smaller amount.
The same applies here:
Less capital put in. Larger position. The same leverage principle.
Options example
Options can also have a leverage effect.
Imagine a stock costs: €100
So 100 shares would cost: €10,000.
An option can let you participate in the movement of those shares without paying €10,000 to buy the shares outright.
So you put in a smaller amount to respond to the movement of a larger asset.
That is also a form of leverage.
That’s all you need to know for now.
How does leverage work with options CFDs?
Now we’re combining two things: Options + CFDs
An options CFD tracks the price movement of an option. You do not buy the traditional option itself. Instead, you trade the change in its price. Leverage can be used here, too.
Let’s use a very simple example. You want to trade an options CFD position worth: €500.
You then need:
€100 margin
In our example, the leverage is:
5x
That means:
€100 of your own capital → €500 options CFD position
Now the position value rises by: 4%
4% of €500 is: €20
The position gains:
+€20
If it instead falls by 4%, it changes by:
−€20
The principle is just like our toy box: you use a smaller amount to control a larger position.
The exact leverage and margin required depend on the product and the broker.
Options CFDs vs. traditional options
The difference is easy to explain.
Traditional option
You trade an options contract. This contract gives the buyer certain rights.
Options CFD
You trade a CFD whose price is based on an option. So you mainly trade: the price movement
Not the traditional options contract itself.
If you’d like to understand options CFDs in more detail:
Understanding Options CFDs – Part 1
→ Read the article
Why is leverage used in trading?
Because leverage does something practical: it lets a smaller amount control a larger position. This allows traders to use their available capital more flexibly. Leverage is therefore used with, among other things:
- Stock CFDs
- Forex
- Options CFDs
- other CFDs
- and various derivatives
But whatever product you trade, the basic idea stays the same. Small strength. Big box.
Worth knowing: in Germany, retail investors may only buy leveraged products such as turbo and knock-out certificates since 16 June 2026 after passing a BaFin knowledge test at their bank.
The knock-out knowledge test: rules and practice questions
The most important rule (for adults, too)
Remember our toy box? The lever helps you move a heavy box.
But when the box moves, it’s a big box. In trading, this means a larger position makes price moves have a greater effect on your capital.
So the most important question isn’t:
“How much leverage can I get?”
It’s:
“How large should my position be?”
The maximum leverage a broker offers doesn’t have to be the leverage you actually use. Leverage is a tool. How much you use is part of your plan.
The one-sentence summary
Leverage means controlling a larger position with less of your own capital.
Simple enough for a child.
Useful for traders.
Or even simpler:
Small strength. Big box. That’s leverage.
Glossary
- Leverage
- Shows how large a position is relative to the capital put into it.
- Margin
- The amount put up or required for a leveraged position.
- Position
- The trade or value you control in the market.
- CFD
- A financial product that lets you trade a market’s price movement without directly owning the underlying asset.
- Options CFD
- A CFD whose price is based on an option.
Frequently asked questions
Learn how to use leverage
Now you know the basic idea.
But trading gets easier when you work through it step by step yourself.
You’ll find relevant lessons in the BeInOptions Academy.
Lots, Leverage, and Profit & Loss
Learn how position size, leverage, gains, and losses are connected.
Open lesson →Leverage without blowing up
Learn the difference between the leverage a broker offers and the leverage you actually use.
Open lesson →At BeInOptions, we explain trading:
- Step by step
- Without hype
- Without unnecessary finance jargon
Understand first. Then apply.