When you trade with leverage, only a percentage of the total trade value is required by the broker. The rest of the trade is financed by the broker or financial institution. The leverage ratio indicates how much larger your position is compared to your margin.

This allows traders to potentially gain higher returns with a smaller initial investment. However, losses are also magnified. If the trade moves against you, your losses could exceed your initial margin, potentially leading to a margin call.

For example, if you have a leverage of 10:1, this means you can obtain a position worth 10 times your actual investment. With a margin of £1,000, you could trade a position worth £10,000.