The Truth About Leverage in Trading
Leverage often looks like a powerful tool for boosting returns, but it can also turn into a trap if not handled carefully. Many traders are attracted to leveraged products because, on the surface, they show bigger gains compared to the base asset. But when you take a closer look, the picture is not as simple as it seems.
How Leverage Performs in the Long Run
Over a long period, leverage can indeed show stronger results. For example, between 2010 and 2025, a 2X leveraged gold product returned close to 283% compared to around 239% from gold itself. (see the image below)
At first glance, this might make leverage appear to be the smarter choice. In strong bull runs, like the period from 2009 to 2011, the difference becomes even more striking. Gold itself gained around 92%, while the leveraged product jumped 215%. For traders during that period, leverage seemed like the clear winner. (see the image below)
The Pain of Leverage During a Downtrend
The real problem starts when markets go into a decline. After 2012, gold entered a downtrend, falling about 28–30%. But the leveraged gold product collapsed by nearly 62%. (see the image below)
This sharp drop highlights how leverage not only multiplies gains in good times but also magnifies losses in bad times. For anyone entering the market in 2012 or later, the experience would have been painful. Watching a position lose more than half its value can create immense emotional stress and force poor decisions.
IMPORTANT ANNOUNCEMENT
From 15th of Aug 2025, we have started sharing all our strategy updates, rebalances, and important announcements on our official WhatsApp Channel.
Why this change?
Because it’s simpler, faster, and right where you already are — WhatsApp makes staying updated effortless.
Stay updated with:
Strategy updates & rebalances
Exclusive announcements & offers
Important reminders – all in one place
Here’s an instruction manual if you are not aware.
The Emotional Struggle of Leveraged Trading
The toughest part of trading with leverage is not always the math, but the mental pressure. When losses pile up quickly, many traders lose patience and control. This often leads to exiting at the wrong time or holding on for too long in the hope of recovery. Unlike normal investments, leveraged products can test emotional strength to the extreme.
The Need for Defined Exit Plans
If someone chooses to trade with leverage, it becomes critical to have clear exit strategies. Entering with the idea of “holding long term” can be dangerous because leverage cuts both ways. Tight stop-losses and strict discipline are essential. Without these, one bad phase in the market can wipe out months or even years of gains.
Final Thoughts on Leverage
Leverage can work in your favor during strong uptrends, but it can also destroy wealth in downtrends. The key is to never overuse it and always respect the risks involved. Proper planning, discipline, and timely exits are the only ways to use leverage wisely. Without these, leverage quickly turns from a tool of growth into a source of loss.
