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Leverage Basics

What is Leverage?
How to Trade Crude Oil with $2,000

7 min readJanuary 2, 2026

⚡ Key Takeaways (TL;DR)

  • Leverage lets you control a large position (e.g., $75,000 of oil) with a small deposit (e.g., $2,000).
  • Margin is your "good faith deposit"—like a down payment on a house.
  • Leverage is a double-edged sword: a 1% market move can mean 37% gains OR 37% losses on your account.
  • Futures trading requires understanding risk management before using real money.

One of the biggest myths in finance is that you need to be a millionaire to trade commodities like Gold, Oil, or the S&P 500.

People look at the price of Crude Oil (let's say $75 per barrel) and do the math: "A standard contract is 1,000 barrels. That's $75,000! I don't have that kind of cash."

The good news? You don't need $75,000. In the Futures market, you might only need $2,000.

This power is called Leverage. To understand how it works, we don't need to look at a trading screen. We just need to look at the housing market.

The Real Estate Analogy

Imagine you want to buy a house worth $500,000. Do you walk into the bank with a suitcase containing half a million dollars in cash?

Of course not.

You pay a Down Payment—maybe $50,000 (10%). Even though you only paid $50,000, you get to live in the entire house. You control a massive asset with a fraction of the cost.

Futures trading works exactly the same way.

The Oil Trade: Margin vs. Cost

In our app's interactive story, we walk you through a scenario at a trading desk:

Trader: "I want to buy 1,000 barrels of Crude Oil. That is worth $75,000."

Broker: "Okay. Show me the money."

Trader: "I only have $2,000..."

In the Stock Market, the broker would laugh at you. $2,000 would buy you maybe 10 shares of Apple.

But in the Futures Market, the broker says:

"That is enough! That is your Margin."

Vocabulary: What is Margin?

In this context, Margin is effectively your down payment. It is a "Good Faith Deposit" required to open the trade.

  • Asset Value: $75,000 (1,000 barrels of oil)
  • Your Cost (Margin): $2,000
  • Leverage: You are controlling $75,000 of oil with just $2,000. That is a leverage ratio of roughly 37:1.

Stock Market vs. Futures Market

FeatureStock MarketFutures Market
Capital Required$75,000$2,000 (Margin)
Buying Power1:1 (Cash)37:1 (Leverage)
Risk ProfileLinearHigh Leverage

The Double-Edged Sword (Risk)

This sounds amazing, right? Why wouldn't everyone do this?

Because leverage is dangerous. In our lessons, we teach one golden rule:

Leverage makes trading RISKIER, not safer.

📈 If Oil goes UP 1%

  • Your $75,000 asset gains $750
  • That is a 37% return on your $2,000 account
  • In a single day!

📉 If Oil goes DOWN 1%

  • Your asset loses $750
  • You just lost 37% of your entire account
  • In a single day.

If the market moves against you significantly, you could lose everything you started with.

Pop Quiz

If Crude Oil costs $70 per barrel and you have $2,000, how many barrels can you control with 10:1 leverage?

💡 Hint: Leverage multiplies your buying power.

Practice: Trading Crude Oil with Leverage

Current Price
$70.00
Scenario 1 of 2

Crude Oil rises from $70 to $72 per barrel.

With 1 contract (1000 barrels), you profit $2,000! Your $2,000 margin just made you 100% return. This is leverage in action.

💡 Key Concept:

Leverage allows you to control a large position with a small amount of capital. A $1 move in Crude Oil = $1,000 profit/loss per contract.

Conclusion

Leverage is a tool. In the hands of a master, it allows for incredible efficiency. In the hands of a beginner, it is a fast way to blow up an account.

Don't guess how the math works. See it.

Experience Leverage Safely

MarketDues breaks down high-leverage scenarios into simple, interactive lessons. Learn the mechanics of controlling $100,000 assets—and why you need to respect the risk—before you ever open a brokerage account.

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