Leverage trading is not unfamiliar in the stock market; many investors have engaged in margin trading or day trading. The core logic of financial leverage is simple: using borrowed money to invest, thereby leveraging a smaller amount of principal to control a larger trading volume. It sounds enticing, but the hidden risks behind it can lead many to lose everything.
What is leverage trading? How does financial leverage work?
The essence of leverage trading is borrowed investment. Suppose you have 100,000 yuan of your own funds, borrow 900,000 yuan from a broker, and conduct a total transaction of 1,000,000 yuan. This is called 10x leverage.
Here's a more intuitive example: suppose the recent closing price of the Taiwan index futures is 13,000 points, with each point worth 200 yuan. The total value of one Taiwan index futures contract is 2,600,000 yuan. But you don't need to pay the full amount; just pay the margin (assumed to be 136,000 yuan) to control this asset. At this point, the leverage multiple is approximately 19.11 times, meaning