One of the most widespread myths in trading is the belief that leverage equals risk — that the moment you use leverage, you’re automatically in danger of blowing your account. While it’s true that leverage amplifies both gains and losses, the equation “leverage = risk” is a myth. In reality, leverage is a tool — and risk comes from how you use it. You can trade with 1:500 leverage and manage risk perfectly, or use no leverage at all and still destroy your account with poor decisions.

This article unpacks the relationship between leverage and risk — and shows why your results depend on position sizing, stop-losses, and discipline, not just the leverage number.

Why people think leverage = risk

1. High-leverage traders blow accounts fast
Using 100x leverage to overtrade without stops will definitely lead to rapid losses — giving the impression that leverage caused the blow-up.

2. Regulators cap leverage to protect retail traders
The FCA, ASIC, and ESMA limit leverage for retail clients to 30:1 or less. This reinforces the belief that higher leverage is inherently too risky.

3. Social media horror stories
YouTube is filled with “I lost my account with 500x leverage” videos — but rarely explains the poor trade sizing or lack of risk management behind it.

4. Confusion between available leverage and used leverage
Many traders don’t realise that you don’t have to use all the leverage available to you — it only becomes risky if you overextend.

The truth: leverage enables risk — it doesn’t create it

1. You define your risk per trade

• A professional trader using 1:500 leverage and risking 1% of their account is far safer than a trader using no leverage but risking 50% of their capital on a single trade.

2. Leverage allows capital efficiency

• You can open a smaller-margin trade and leave more capital in reserve.
• This allows for diversified positions and better drawdown control.

3. No leverage still = full risk if your size is wrong

• Trading a £10,000 position on a £10,000 account (1:1 leverage) is still 100% exposure — and total risk without a stop-loss.

4. Risk = position size × stop-loss distance

• That formula determines how much money you’re putting on the line — not leverage.
• Leverage simply determines how much capital is tied up, not what you could lose.

Leverage vs Risk: Key Comparison

Concept	Leverage	Risk
What it controls	Buying power (how much you can trade)	Exposure to loss (how much you can lose)
Set by	Broker and jurisdiction	You (via trade size, stop-loss, and capital allocation)
Dangerous when	Used without limits	Misunderstood or unmanaged
Can exist alone?	Yes — but neutral unless you misuse it	No — always present, even at 1:1 leverage

How to use leverage without increasing risk

• Always define risk per trade in % of capital (e.g. 1%)
• Use a stop-loss on every position
• Calculate position size using a risk calculator, not guesswork
• Trade only when your strategy shows clear edge
• Don’t focus on “how much you can control” — focus on how much you can afford to lose

Conclusion

Leverage ≠ risk. Risk is a decision. Leverage is a tool. You choose how much capital to expose on every trade. Leverage only becomes dangerous when it’s misunderstood, misused, or unmanaged. When applied responsibly, it can make your trading more efficient — not more reckless.

To learn how to use leverage the right way — with structured risk control and zero emotion — enrol in our Trading Courses at Traders MBA, where smart traders turn risk into reward with precision.