Leveraged products, also called, leverage instruments are trading derivatives that allow traders to speculate on underlying assets with large position sizes by depositing a small initial investment called the margin.
Through the use of leverage, traders can access a lot more capital than what they are typically able to trade with. This opens up the opportunity for much larger profits and losses.
Leverage products have become very popular among beginner traders due to their ease of use, wide range of markets, accessibility, and profit potential.
Leveraged products
What are leverage products?
Leveraged products represent speculative assets that offer traders larger exposure to a market without putting up the full value of the investment.
These instruments are seen as a high-risk and high reward and the speculator should tread carefully if just starting.
Beginners who wish to increase their position size without risking more money can use borrowed money to gain an advantage.
Most leverage trading strategies involve strict risk management techniques which can reduce the exposure to risk while trading with large sums.
Your leveraged position can be vulnerable to some added risk factors such as margin calls and liquidations.
Short-term traders who can manage the risk might be well on their way to making small fortunes with these products.
Choosing the perfect leverage ratio for a small account is essential to not overleverage.
Types of leveraged products
Leveraged products are derivatives of other underlying securities such as stock indices, commodities, national currencies, and even cryptocurrencies such as Bitcoin.
These products mean that retail clients can trade the same assets as they traditionally invest in but through leverage trading.
This boosts both profitability and risk-taking.
Each trader needs to understand the added risk factors and the characteristics of each market before attempting to beat these markets.
See below for a full description of all leveraged products.
Foreign Exchange (Forex)
Through the foreign exchange market, traders speculate on the prices of national currencies such as JPY, GBP, CHF, USD, and EUR.
When trading forex with leverage, your speculative bet could be increased up to 500x depending on the ratio you choose.
This requires the speculator to only put up a small portion of the total position value.
- Leverage – 1:1 – 1:5000
- Fees – Spread
- Difficulty level – Medium +
- Markets – National currencies (e.g. GBP, EUR, USD)
- Market opening hours – 24/5
- Type of broker – Forex brokers, CFD brokers, High leverage forex brokers
- Government regulation – NFA, CFTC, FCA, ASIC, ESMA, CYSEC
- Geographical accessibility – Global
Futures
Futures are more complex leveraged instruments where a buyer and seller agree on a future price for settlement.
Futures traders typically enter the markets for hedging purposes, day trading, or scalping.
Futures offer very small margin requirements allowing retail traders to engage in high leverage trading.
- Leverage – 1:1 – 1:125
- Fees – Commission + Management fee
- Difficulty level – High
- Markets – Stocks, indices, commodities, forex, and cryptocurrencies
- Market opening hours – Specific trading hours
- Type of broker – Futures brokers
- Government regulation – CFTC
- Geographical accessibility – USA
Contracts for difference (CFD)
Contracts for difference, more commonly known as CFDs, are market derivatives that are traded globally by retail speculators.
To access CFD leverage you simply need to sign up with a regulated CFD broker and make a small initial deposit called a margin deposit.
CFD traders typically speculate on short-term price movement and the most traded markets are forex, stocks, cryptocurrencies, metals, and commodities.
- Leverage – 1:1 – 1:500
- Fees – Commission + Management fee
- Difficulty level – Medium
- Markets – Stocks, forex, commodities, indices, cryptocurrencies, ETFs, bonds
- Type of broker – CFD broker
- Government regulation – CYSEC, FCA, ESMA, ASIC
- Geographical accessibility – Globally except USA
A common tool to use is a CFD Calculator which can help you calculate your profit, loss, and margin requirement.
Options
Options contracts give the holder of the contract the right, but not the obligation, to buy a security at a specific date and price.
The options leverage comes from the difference in the premium paid and the real price of the underlying stock.
Options are highly speculative and complex leveraged products that benefit traders with a short-term outlook.
Options strategies such as a covered call, protective collar, straddle, and iron condors are commonly used by traders who want to execute a complex trading view.
- Leverage – 1:1 – 1:50
- Fees – Contract fee, service charges
- Difficulty level – High +
- Markets – Stocks, indices, commodities, cryptocurrencies, forex
- Type of broker – Options broker
- Government regulation – CFTC, SEC,
- Geographical accessibility – Global
Financial Spread betting
Financial spread betting is a type of leveraged instrument that lets traders bet on price differences of an underlying asset without owning the asset.
Spread betting leverage can be accessed through spread betting brokers where the amount of borrowed capital can vary from anything between 1:1 leverage to 1:5000 leverage.
Through spread betting, you can speculate on both the long and the short side of the market making it a flexible tool for day traders.
A common practice among spread bet traders is to use a spread betting calculator to calculate the overall profitability of a setup.
- Leverage – 1:1 – 1:5000
- Fees – Spread, rollover costs, inactivity fees, commission
- Difficulty level – Medium +
- Markets – Indices, stocks, bonds, forex, commodities, cryptocurrencies
- Type of broker – Spread betting broker
- Government regulation – FCA, BaFin, FSCA
- Geographical accessibility – Global
Cryptocurrency
Cryptocurrency leverage trading is the latest leveraged product to have penetrated the global market.
Crypto coins such as Bitcoin, Ethereum, and Solana are some of the more popular markets traded in this field.
Cryptocurrencies are traded globally on a crypto leverage trading platform where the required margin deposit can be as low as $10.
In crypto margin trading, the products are based on a margin collateral and a leverage ratio which is provided by the exchange.
- Leverage – 1:1 – 1:125
- Fees – Commission, rollover fee, funding rate fee
- Difficulty level – Medium +
- Markets – Cryptocurrencies
- Type of broker – Crypto exchange, CFD broker, Spread betting platform
- Government regulation – FinCEN, CFTC, FFAJ, FSA, AUSTRAC, FINTRAC, CySEC, NFA, ASIC
- Geographical accessibility – Global
Binary options
Binary options are leveraged instruments that offer a high-risk and high-reward profile.
Most traders would argue that binary options are one of the easiest products to use to access margin, however, the underlying markets are just as tough to crack as with any of the other products.
Binary options are traded globally and typically attract short-term traders.
- Leverage – 1:1 – 1:100
- Fees – Contract fee, commission
- Difficulty level – Medium
- Markets – Forex, indices, commodities, cryptocurrency,
- Type of broker – Binary options broker
- Government regulation – CFTC, CySEC, ASIC,
- Geographical accessibility – Global
ETFs
ETFs offer leverage products to investors through electronically assembled baskets of underlying assets such as stocks, indices, and commodities.
ETFs tend to offer lower ratios hence being a less risky product.
Most speculators who seek these types of investments have a long-term approach where leverage stock trading is in high demand.
- Leverage – 1:1 – 1:20
- Fees – Commission
- Difficulty level – Easy
- Markets – Indices, commodities, stocks, bonds, national currencies
- Type of broker – Online brokers, banks, investing apps
- Government regulation – SEC, local financial authorities
- Geographical accessibility – Global
How to trade these types of products
It is easy to get started with these instruments and depending on what market you favor there are different ways to access them.
These products are highly popular and efficient as there are very few hurdles for beginners.
Sign up with a broker, deposit an initial stake, and start trading.
Once an initial investment has been made in your chosen trading platform you are free to choose from a basket of markets.
Trade fees vary from broker to broker and remember that the cost of trading scales according to the ratio.
Pros and cons you should know about
Comparing these instruments to standard financial markets there are some benefits and drawbacks that are worth highlighting.
Pros
- Potential for higher returns
- Access more markets
- Enabling traders with smaller accounts
- Trade more markets simultaneously
Cons
- Risk of large losses
- Some products are more complex
- Good risk management is required
- Fees are greatly increased
Conclusion
Leveraged products offer financial backing to traders with underfunded accounts in nearly all markets such as forex, stocks, crypto, commodities, indices, bonds, and more.
The most popular instruments listed in this article are forex, futures, options, CFDs, ETFs, spread betting, binary options, and cryptocurrencies.
With these products, your potential for profit and loss is massively increased.
Traders starting out should use top risk management strategies and educate themselves about the product they are trading.
