Leverage: the arithmetic nobody shows you

Leverage is sold as a way to make more. Mechanically, it is a way to make the same move matter more to your account balance.

What it actually multiplies

• Same signal, 2× size → the win doubles and the loss doubles.
• A 5% adverse move at 5× leverage is a 25% account hit — before any stop.
• A 20% adverse move at 5× is a 100% loss. The market does not need to go to zero for you to.

The part that gets ignored

It also makes the emotional problem harder: a leveraged position moves your P&L fast enough that your stop gets moved. That is not a market problem.

If you use it

• Size by risk, then check whether leverage is even needed to reach that size.
• Treat margin as a limit, not a target. Having buying power is not a reason to use it.
• Model the worst case first, at the risk manager — what a full stop costs, not what a good day earns.