Another more risky, but potentially more profitable, approach would have been to use your entire $1000 as margin to open a single trade worth $200 per point, or giving you exposure of $20,000 in the underlying market.
If you had done this, each point of movement in your favour would generate 20 times as much profit compared to the unleveraged scenario – for the same initial outlay.
But the same is true for your potential losses. The market would only have to move against you by five points to wipe out your entire $1000 ‘investment’.
And should the market move extremely quickly, or 'gap' suddenly between two prices, you could potentially lose an awful lot more. In the absolute worst case scenario, with the underlying share price falling to zero and neither you or IG being able to close the position, you would lose your full exposure of 100 x $200 = $20,000.
How much leverage can you get?
You’ll find the degree of leverage you can get will vary according to the conditions of the underlying market and the size of your trade.
Generally speaking, the more volatile or less liquid an underlying market – or the larger your trade – the lower the leverage on offer, as we seek to protect you, and ourselves, from the effects of large and rapid movements in price.
It’s not unusual to find leverage of 50:1 offered on extremely liquid markets, like popular forex pairs.
Here’s how different degrees of leverage affect your exposure (and thus profit potential and maximum loss) for an initial investment of $1000: