Leverage (Futures)

Leverage in futures is the multiple of market exposure you control relative to the cash you put up. Because futures are margined — you post a good-faith initial margin rather than the full contract value — a small deposit commands a much larger notional value. Leverage is simply Notional Value ÷ Initial Margin, and it cuts both ways: every percent move in the underlying is magnified against the margin, not the notional.

This is structurally different from equity margin, where you borrow to buy more shares. In futures there is no loan and no interest charge on borrowed stock — the leverage is intrinsic to the contract design and is funded by daily variation margin settlement rather than by debt. Intraday day-trading margin from retail brokers (often a fraction of the exchange minimum) pushes effective leverage far higher still.

The practical danger: at 15–20:1 leverage, a routine 5% adverse move can erase the entire margin and, in a gap or fast market, leave a negative balance for which the trader is liable. Sound futures trading sizes positions off notional exposure and a fixed dollar risk per trade — never off how many contracts the margin technically permits.