In day trading, what does leverage refer to?

• A. Using margin accounts to buy securities with borrowed money.
• B. Trading without any risk.
• C. A risk-free loan.
• D. Access to unlimited capital.

Answer: (A)

Leverage in day trading means using borrowed funds to amplify your buying power, typically through a margin account. By borrowing part of the purchase price, you can control a larger position with less of your own money, which can boost gains if the trade goes your way. But it also magnifies losses and adds risk: if the trade moves against you, the broker can require you to deposit more funds or liquidate your position to cover the loan.

The borrowed money isn’t free or risk-free. It carries interest, and you’re subject to margin requirements. If your equity falls below the maintenance margin, you may face a margin call, requiring additional funds or securities to be deposited, or your positions could be liquidated.

The other ideas don’t fit because leverage is not risk-free, not a guaranteed loan, and not unlimited capital—there are strict limits on how much you can borrow and under what conditions.