What is leverage?Leverage

Risk-free on paper isn't risk-free in practice. Trading costs, funding pressure and execution delays can all spoil an arbitrage.

Leverage = position value ÷ required margin. For the same position, leverage only changes how much money you put up, not the P&L from price moves.

Required margin = position value ÷ leverage. The bigger the position, the more margin is locked up, and the more you lose on the same move.

One piece of weekend news, and on Monday the price opens straight past your stop. CFD risk doesn't only come from leverage.

Contracts with no expiry date use a "funding rate" to stay close to spot: longs and shorts regularly pay each other a fee.

Use a "lever" to move a big position: at full leverage, a 1% price move can swing your margin by 100%.

Drag the leverage and lot size to watch used margin, free margin, the margin call warning and the line that triggers a stop-out.

Futures only require part of the value as margin, but P&L is settled at the settlement price every day at the close. Drop below maintenance margin and you must top up.

One call costs a fraction of the stock price yet shares in the gains on 100 shares. But if the stock doesn't rise enough, it goes to zero. Compare the returns of buying stock vs. buying a call.

60% stocks / 40% bonds looks balanced, but stocks are far more volatile, so over 90% of the portfolio's risk actually comes from stocks. Risk parity makes each asset class contribute the same amount of risk.

How much you buy isn't about how much is in your account; it's about where your stop is. Decide the most you'll lose first, then work back to the position size.