Ads for leverage of 1:1000, 1:2000 and more circulate widely. Margin requirements shrink to a sliver, and a 100 dollar account can control huge positions.
The pitch sounds like power. The reality is that leverage amplifies losses as readily as gains, and the margin cushion vanishes quickly. At 1:2000, a move of 0.05% against a fully leveraged position can wipe out the account.
There's a legitimate use: lower margin per position allows more flexibility when running several trades, and a trader sizing risk properly doesn't have to use the maximum. The danger lies in the temptation. Having the ability to open a position 20 times bigger than sensible makes mistakes more catastrophic.
Many professionals prefer lower leverage on purpose, as it forces sizing discipline.
Regulators in several regions cap retail leverage for exactly this reason, citing the high rate of retail losses.
What leverage is actually used in practice, and has high available leverage ever led to trouble?
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Leverage of 1:2000: feature or trap?
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