Leverage
Leverage means using borrowed capital to open a larger position than your own money alone would allow. It multiplies both gains and losses, and a small price move against you can wipe out your stake.
How leverage works
To trade with leverage, you deposit collateral, called margin, and the platform lets you control a position several times that size. Leverage is shown as a multiple: with 5x, 1,000 USDC of margin controls a 5,000 USDC position. In crypto, leverage is mostly used with perpetual futures and margin trading, both of which let you go long or short.
A worked example
Say you open a 10x long with 1,000 USDC, giving a 10,000 USDC position. If the price rises 5 percent, the position gains 500 USDC, a 50 percent return on your margin. If the price falls 5 percent, you lose 500 USDC, half your margin. If it falls around 10 percent, your margin is essentially gone.
In practice you are liquidated before that point. The platform requires a minimum maintenance margin, and once your losses eat into it, the position is closed automatically. Fees and, on perpetual futures, funding payments reduce your margin further over time.
Why traders use it
Leverage lets traders get exposure without tying up all their capital, and lets hedgers offset other positions efficiently. Used with a small multiple and a clear exit plan, it is a tool. Used at high multiples, it turns normal market noise into a total loss.
Risks and common mistakes
Crypto prices can move 10 percent in hours, so high leverage leaves very little room. Sudden spikes, often called wicks, can liquidate positions even if the price quickly recovers. Many beginners focus on the leverage multiple rather than on how much they would lose if the trade is wrong. A sounder approach is to decide the maximum loss first, size the position to that, and set the stop accordingly.
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Frequently asked questions
Can I lose more than I put in with leverage?
On most crypto platforms with isolated margin, losses are capped at the margin for that position. With cross margin, losses can draw on your other balances. Rules differ by platform.
Does higher leverage mean higher profit?
It means larger percentage swings on your margin in both directions, and a liquidation price much closer to your entry.
Is leverage the same as margin?
No. Margin is the collateral you put up; leverage is the ratio between the position size and that margin.
Related terms
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