Leverage is a double-edged sword.
It’s one of the reasons forex trading attracts so many people – and also one of the reasons many walk away with their fingers burned.
For New Zealand traders, leverage offers a chance to trade larger positions than your account balance would normally allow. But if you don’t understand how it works, or how it ties into risk management, you’re basically walking a tightrope without a harness.
In this guide, we’ll break down what leverage really is, how it works in practice, and how smart Kiwi traders use it to amplify opportunity – not destruction.
What Is Leverage in Forex?
In simple terms, leverage lets you control a larger trade size with a smaller amount of capital.
If your broker offers 1:100 leverage, you can control a $100,000 position with just $1,000 of your own money. That sounds powerful – and it is – but it also means a small move against you can wipe out your position quickly if you’re not careful.
Think of it like a mortgage: you’re putting in a small deposit, but you’re exposed to the full size of the property. If the value drops, you still feel the full impact.
How Leverage Works in Practice
Let’s say you have a $2,000 trading account and you use 1:50 leverage. That gives you access to trade positions up to $100,000 in size.
Now imagine you go long on NZD/USD, and it drops by 1%. That’s only a tiny move – but a 1% loss on $100,000 is $1,000. You’ve just lost half your account in a single trade.
On the other hand, if the market moved in your favour by 1%, you’d double your account. Tempting, right? But that kind of risk cuts both ways – and in volatile markets, it’s a dangerous game to play.
The Real Risk: It’s Not Just the Leverage
Here’s what most traders get wrong:
Leverage itself isn’t bad. Misusing it is.
The actual danger lies in combining high leverage with:
- No stop loss
- Oversized positions
- Revenge trading after a loss
- Emotional decision-making
In fact, many professional traders use leverage conservatively, often risking less than 1% of their account on a single trade – even when they have access to high leverage.
How Kiwi Traders Can Use Leverage Responsibly
New Zealand brokers (and ASIC-regulated ones across the Tasman) often provide leverage from 1:30 to 1:500, depending on the account type. That’s plenty of firepower – but just because it’s there doesn’t mean you should use it.
Here’s what experienced traders do differently:
- They calculate position size based on their stop loss and account size, not just how much margin they have.
- They always trade with a stop loss, protecting their downside before worrying about potential profits.
- They keep their risk per trade low – often below 1% of the total account balance.
- They focus on consistency, not home-run trades.
It’s boring. It’s disciplined. And it works.
The Leverage Trap New Traders Fall Into
Many new traders chase quick gains by cranking up leverage on short timeframes – trying to scalp a few pips here and there with big positions.
The problem?
- One unexpected news event can wipe you out.
- Slippage during volatility can make stop losses ineffective.
- Your mindset shifts – you start hoping instead of analysing.
That’s not trading. That’s gambling with good marketing behind it.
Final Thoughts: Leverage Is a Tool, Not a Strategy
Used correctly, leverage is a useful tool. Used recklessly, it’s the fast track to blowing your account.
If you’re trading from New Zealand – whether with a local broker or a trusted offshore one – remember that you’re in control of how much risk you take. No one’s forcing you to max out the available leverage.
Take the time to learn proper risk management, build your strategy, and treat your trading account like a business – not a get-rich-quick scheme.