What should traders know about capital control through the borrowing system

bridge_anxiety · 2026-01-06T15:24:52+00:00

Leverage in trading allows traders to control large sums of money with a small capital investment. While it can amplify profits significantly, it also increases the risks of substantial losses, making risk management essential.

bridge_anxiety

2026-01-06 15:24:52

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The Meaning of Borrowed Money in Trading

In trading, leverage refers to a tool that allows traders to control a large amount of money using only a small amount of actual capital. This system is achieved by depositing a margin( only, and borrowing the rest from the broker.

For example, if you want to control a $100,000 position, the broker might reserve only $1,000 from your account as collateral, which means you are using a 1:100 ratio. Most brokers offer a variety of ratios, ranging from 1:1 to 1:500 in some cases.

Table of the Relationship Between Collateral and Ratios

Collateral	Ratio
5%	1:20
2%	1:50
1%	1:100
0.5%	1:200
0.2%	1:500

How to Calculate in Real Situations

Example 1: Ratio 1:100
When opening a $100,000 position, the required collateral is 1% or $1,000.

Example 2: Ratio 1:50
For increased safety, if choosing a ratio of 1:50 for the same position, the collateral needed is 2%, or $2,000.

Example 3: Ratio 1:200
To reduce the collateral, using a ratio of 1:200 requires only 0.5% or ).

Impact on Profit and Loss

Suppose the EUR/USD price is 1.26837 and the trader opens 1 lot $500 100,000 units( with a buy order. The position value is $126,837.

Collateral required:

Item	Leverage 1:1	Leverage 1:200
Trading volume	1 lot )100,000(	1 lot )100,000(
Collateral	$126,837	$634.19

If the price increases by 3 pips from 1.26837 to 1.26867:

Item	Leverage 1:1	Leverage 1:200
Trading volume	1 lot )100,000(	1 lot )100,000(
Collateral	$126,837	$634.19
Profit in dollars	)	$130
Profit in percentage	0.1%	20%

If the price decreases by 3 pips from 1.26837 to 1.26807:

Item	Leverage 1:1	Leverage 1:200
Trading volume	1 lot $130 100,000(	1 lot )100,000(
Collateral	$126,837	$634.19
Loss in dollars	-)	-$130
Loss in percentage	-0.1%	-20%

Why It’s Called a Double-Edged Sword

Although profits and losses in dollar terms are the same, the return relative to the capital you used differs significantly. For the EUR/USD movement of 3 pips:

Without leverage $130 1:1(: Profit/Loss = 130 ÷ 126,837 = 0.1%
With leverage 1:200: Profit/Loss = 130 ÷ 634.19 = 20%

It is clear that leverage can magnify profits tremendously, but conversely, losses will also expand proportionally.

Summary

Using leverage in trading is a process of borrowing money to expand your position. Traders can choose an appropriate ratio based on their risk tolerance through their broker. This system allows traders to increase potential profits with less capital but also comes with higher risks. Therefore, understanding how leverage works and managing its risks are essential skills for every trader.

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