“leverage” is having the ability to control a large amount of money using none or very little of your own money and borrowing the rest.

For example, to control a $100,000 position, your broker will set aside $50 from your account ( Like In FBS Forex Broker ). Your leverage, which is expressed in ratios, is now 2000:1.

You’re now controlling $100,000 with $50.

Let’s say the $100,000 investment rises in value to $101,000 or $1,000. If you had to come up with the entire $100,000 capital yourself, your return would be a have 1% ($1,000 gain / $100,000 initial investment).

This is also called 1:1 leverage. Of course, I think 1:1 leverage is a misnomer because if you have to come up with the entire amount you’re trying to control, where is the leverage in that?

Fortunately, you’re not leveraged 1:1, you’re leveraged 2000:1. The broker only had to put aside $50 of your money, so your return is a groovy 400% ($1,000 gain / $50 initial investment).