Beginner Guide: How Leverage Works When the Fed Hikes Rates

With the Fed edging closer to a September rate hike, now is the perfect time to understand leverage. Leverage lets you control a larger position with a smaller amount of capital, known as margin. For example, 50:1 leverage means $100 controls a $5,000 position.

While leverage magnifies profits, it equally magnifies losses. If oil prices and inflation keep pushing rate expectations higher, volatility increases — meaning leveraged positions can move against you fast. Always calculate your margin requirement before entering a trade.

New traders should start with lower leverage ratios until they're comfortable reading how quickly account equity can shift during high-impact news events like Fed decisions.