Leverage
Also called: leveraged trading · multiplier
Definition
Leverage is using borrowed funds or margin to open a position larger than your own capital, which multiplies both profits and losses.
How leverage works
Leverage is shown as a multiplier such as 3x, 10x or 50x. At 10x, 1,000 USDT of margin controls a 10,000 USDT position. A 1% price move then changes your margin by about 10%, in either direction.
The main risk is liquidation. The higher the leverage, the smaller the price move needed to wipe out your margin. At 10x, a move of roughly 10% against you, minus a buffer for maintenance margin and fees, ends the position. At 50x, about 2% is enough. Leverage also increases fees and funding in relation to your margin, because both are charged on the full position.
Leverage is a tool for capital efficiency, not a way to make a bad trade good. Many experienced traders choose their position size first, based on how much they can afford to lose at the stop-loss, and only then select leverage to free up margin. Maximum leverage differs by exchange, pair and position size, and some countries cap retail leverage on crypto derivatives.
Example
Suppose you have 500 USDT and open a long on ETH at 2,000 USDT with 20x leverage, a position of 10,000 USDT or 5 ETH. If ETH rises 3% to 2,060, you gain 5 × 60 = 300 USDT, a 60% return on margin. If ETH falls 3% to 1,940, you lose 300 USDT, 60% of your margin, and a fall of under 5% would likely trigger liquidation.
Common mistakes
- Choosing leverage before deciding how much you are willing to lose on the trade.
- Forgetting that fees and funding are charged on the full leveraged size.
- Assuming low leverage cannot be liquidated; it can, just after a larger move.
Learn and practise
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What does 10x leverage mean?
It means your position is ten times your margin. A 1% price move changes your margin by about 10%.
What leverage should a beginner use?
Lower leverage gives you more room before liquidation. More important than the number is sizing the position so a stop-loss costs only a small part of your account.