Trading & Markets
Leverage
Controlling a large notional value with a small amount of capital. Futures are inherently leveraged, which is why small accounts can produce large profits and losses.
In plain English
One ES contract at 5000 controls about $250,000 of index exposure. On a $50,000 prop account, five contracts is 25 to 1 notional leverage, far beyond what a cash account could hold.
Prop firm rules exist because of this leverage: drawdowns, daily limits, and contract caps are all fences around the speed at which leveraged futures can destroy an account.
- A 1 percent index move against a 5 contract ES position is roughly $12,500, which no evaluation drawdown survives.
- The contract limit is what keeps that scenario out of reach.