How leverage is measured
Where leverage comes from
| Product | How the leverage arises |
|---|---|
| Intraday equity | The broker blocks a margin of at least 20% of the trade value, so leverage is at most 5 times |
| Futures | You post SPAN and exposure margin, a fraction of the contract value |
| Bought options | The premium is small compared with the value of the underlying it controls |
| Margin trading facility | The broker funds part of a delivery purchase and charges interest |
For futures, one lot of Nifty futures is worth about ₹16.3 lakh at 25,053. If the margin is, for illustration, ₹2 lakh, the position is about 8 times leveraged: a 1% move in Nifty is about ₹16,300, or 8% of the margin.
For options, an at-the-money Nifty call in our model example costs ₹18,233 per lot and gains about ₹3,500 on a 100-point rise, a 19% gain on the premium from a 0.4% move in the index.
Why leverage is risky
- Losses grow as fast as gains. A small move against you can be a large share of your capital.
- Margin calls. If losses reduce your margin below the requirement, you must add funds or the broker closes positions.
- Gaps. A gap at the open can take a leveraged position past its stop before you can exit.
- Costs. Larger positions pay more in charges and, for funded positions, interest.
SEBI's studies of individual traders found that most lost money in both intraday equity and F&O, where leverage is highest. See our summary of SEBI's F&O profitability studies.
Using leverage carefully
- Size by risk, not by margin. Decide the most you will lose per trade, then set the position size. See the position size calculator.
- Keep spare margin in the account for volatile days.
- Use stops and daily loss limits.
- Prefer defined-risk structures when selling options.
Related terms
Learn more
Frequently asked questions
What is 5x leverage?
A position five times the size of your capital. A 1% move in the position is a 5% change in your capital.
How much leverage is allowed for intraday trading in India?
Brokers must collect a minimum margin for intraday equity, which limits leverage to about 5 times for most stocks.
Do options have leverage?
Yes. An option controls a full lot of the underlying for the price of the premium, so its value moves much more in percentage terms than the underlying.
Is high leverage good?
It increases both gains and losses. Most traders who lose money use more leverage than their risk rules allow.