Leverage

When you use leverage, a broker or counterparty effectively lends you a portion of the trade value. You put up a deposit - called margin - and control a notional position that is a multiple of that deposit. A 10:1 leverage ratio means USD 1,000 of your own capital controls a USD 10,000 position. Every percentage move in the underlying asset therefore produces a ten-times larger percentage move on your deposited margin, in either direction.\n\nLeverage is available across asset classes including forex, contracts for difference (CFDs), futures, and options. In the UAE, brokers offering leveraged products to retail clients must be authorised by either the Dubai Financial Services Authority (DFSA) if operating from the DIFC, or the Securities and Commodities Authority (SCA) for onshore entities. Both regulators impose rules on how leverage limits and margin requirements must be disclosed to clients. Equivalent oversight exists across the GCC: the Capital Market Authority (CMA) in Saudi Arabia, the Qatar Financial Centre Regulatory Authority (QFCRA) in Qatar, and the Central Bank of Bahrain (CBB) among others.\n\nA critical concept linked to leverage is the margin call. If a leveraged position moves against you and your account equity falls below the broker's maintenance margin threshold, the broker may automatically close your position - potentially locking in a loss that exceeds your original deposit. This is known as a negative balance or margin call event, and some retail broker agreements include negative balance protection clauses. Always read the margin policy in the broker's client agreement before trading on leverage.

Many GCC-based expats encounter leverage through forex trading platforms and CFD brokers that are heavily marketed in the region. Because leverage amplifies losses as well as gains, a position can be wiped out entirely - or exceed the deposited margin - before a trader has time to react, particularly in fast-moving markets or during regional news events. Regulators such as the DFSA and SCA require brokers to provide risk warnings, but the responsibility for understanding margin requirements sits with the account holder.\n\nExpats should also be aware that leverage products are generally not compatible with a passive, fee-efficient portfolio strategy built on UCITS ETFs. Leveraged instruments carry financing costs - often expressed as an overnight swap or funding rate charged daily on the borrowed portion - which create a cost drag on any position held beyond intraday. These financing costs are separate from the broker's spread or commission and can erode returns significantly on medium- to long-term leveraged positions. Always request a full breakdown of overnight financing rates from your broker before opening a leveraged position.