How is the "loan" repaid in a leveraged trade?

Question

I am looking at an example of a leveraged trade here:

The best way to understand leverage is through an example of how it
affects your profit or loss potential. If you trade with no leverage
at all and invest $1,000, for every 1% move in the market you can gain
or lose $10, which equals 1% of $1,000.
In comparison, if you were to invest the same $1,000 and trade using
x10 leverage, the dollar value of your position would be equal to
$10,000.
1% of $10,000 equals $100, so for every 1% move in the market you can
gain or lose $100.

As I understand the x10 was basically a loan given to you by the exchange. So if the price does go up 1% and you decide to cash out, how is the profit exactly $100 and not lesser? Don't you have to repay the loan?

Bob Baerker · Accepted Answer

A 1% gain on $1k is $10

They lend you $9k.  A 1% gain on $10k is $100.  You repay the $9k loan and you have a return of 10%.  Your gain will be less if there is a borrow fee for the loan.

Beware of trading at such high leverage because leverage is a double edged sword.

user253751 · Answer

If the price goes up 1% and you cash out, you get $10100. You repay the $9000 loan and you now have $1100, you started with $1000 so your profit is $100.
You may or may not be charged interest.

How is the "loan" repaid in a leveraged trade?

2 Answers

Add your own answers!

Ask a Question