Leverage
The multiplier that lets a trader control a larger position than their deposited capital — 1:100 leverage means $1,000 can control a $100,000 position.
Definition
Leverage is the ratio of total position size to the capital required to hold it. A 1:100 leverage means the trader controls 100 units of exposure for every 1 unit of capital — $1,000 in margin controls a $100,000 position. Leverage is set by the firm (for prop accounts) or the broker (for retail accounts) and varies dramatically: EU-regulated brokers cap retail forex leverage at 1:30, US brokers at 1:50, while offshore and prop firm accounts typically offer 1:100 or more. Higher leverage means smaller per-trade margin, more buying power, and proportionally higher risk — the position's PnL moves in real dollars regardless of how much margin was used to open it.
Example
Why It Matters
Leverage is the single biggest input to how fast a prop firm account can reach a drawdown breach. A trader on 1:100 leverage sizing at 2% risk can blow through a 5% daily drawdown in three losing trades; on 1:30 leverage, the same risk-sized position takes longer to trip the limit because the required margin crowds out additional positions. Prop firms set leverage as a risk-management lever — firms like FTMO and E8 Funding allow 1:100, while firms like Nordic Funder (1:20) and The Funded Trader (1:30) deliberately cap leverage to reduce blowup frequency on their funded book.