How Does the Leverage Provided by Margin Affect the Risk/reward of Futures Trading?
Margin enables traders to control a large notional value of an asset with a relatively small amount of capital, which is the essence of leverage. Leverage magnifies both potential gains and potential losses.
A small favorable price movement can lead to a high percentage return on the margin deposited. Conversely, a small adverse price movement can quickly deplete the margin account, leading to a margin call and potential liquidation of the entire position.
