These days, I often get asked about leverage trading, and honestly, there are few strategies as double-edged as this one.

First, you need to understand the meaning of stock leverage correctly. Simply put, it’s borrowing money from a broker to open a position larger than your actual capital. For example, using 1 million won with 10x leverage means you can trade worth 10 million won.

What’s important here is that profits are amplified 10 times, but losses are too. If the price rises by 1%, you gain 100k won, but if it drops by 1%, you lose 100k won. That’s why many people start without fully understanding leverage and end up in big trouble.

To give an even more extreme example, suppose you use 20x leverage with 1 million won. If the price goes up by just 5%, you make 1 million won profit. Conversely, if it drops by 5%, you lose all your capital. This is exactly why leverage is a double-edged sword.

The concepts of margin and margin call are also essential. Margin is the collateral you deposit to maintain your position, and if you fail to meet this requirement, the broker will forcibly liquidate your position. That’s when losses become final.

Once you understand the meaning of stock leverage, you should look at the difference between leverage trading and regular trading. Leverage offers high capital efficiency. It allows you to open larger positions with the same amount of capital. But the downside is that losses are also magnified. You can see how painful it is for those who use a lot of leverage during a market crash.

Knowing who it’s suitable for is important. It’s recommended only for experienced traders who understand the market well and can thoroughly manage risks. Beginners should avoid it, as it’s risky. Especially in highly volatile markets.

If you actually engage in leverage trading, you must follow some rules strictly. First, always set a stop-loss. Second, adjust your position size so that losses don’t threaten your entire portfolio. Third, diversify your investments across multiple assets to reduce risk. Fourth, keep monitoring the market and adjust your positions immediately if needed. Fifth, keep a trading journal to analyze past trades.

If you understand the true meaning of stock leverage and manage risks carefully, you can aim for high returns. But remember, a single mistake can wipe everything out. Leverage is just a tool, and how you use it is entirely your responsibility.