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There are two kinds of levels in the game--experience point or prestige levels and upgrade levels.

Upgrade levels can be purchased, either a Basic Upgrade or a Premium Upgrade. Each of these offers a set of improved features, with the ones from the Basic Upgrade carrying over to the Premium. You can read about them under "Upgrades." Ammit simplified this very recently.

Experience points, as White Valley, explained, are gained by creating and breeding horses. Each horse you create or breed gives you 1 experience point, and it takes 100 points to go up one level. The only advantage gained for these levels is that additional stall that is added to your primary barn for each 201st horse. Sending horses to the public auction reduces your experience score by one for every horse you auction. Small stables with fewer stalls and pasture places will see this level remain fairly constant, fluctuating as horses are auctioned off to make room for new ones to be created or bred.