Leverage in trading refers to the use of borrowed funds to increase the potential return on investment. In the context of forex, it allows traders to control a larger position with a relatively small amount of capital. For example, with a 100:1 leverage ratio, a trader can control $100,000 in currency with just $1,000 of their own funds. While leverage can amplify profits, it also increases the risk of significant losses, as even small market movements can have a substantial impact on a trader's account. Therefore, managing leverage carefully is crucial to successful trading.