Leverage
Leverage is the ability to open a position larger than your account balance using borrowed funds from the exchange. Leverage increases both potential profit and losses.
Denoted as 1:10 or 10×. This means for every dollar you have, the exchange adds 9 more dollars.
How It Works
Without Leverage (1×)
You have $1,000. Buy BTC at $50,000.
Price rises 10% to $55,000:
Profit: $100 (+10%)
Price falls 10% to $45,000:
Loss: −$100 (−10%)
With 10× Leverage
You have $1,000, open a position for $10,000.
Price rises 10% to $55,000:
Profit: $1,000 (+100% of capital)
Price falls 10% to $45,000:
Loss: −$1,000 (−100% of capital)
With a 10% drop, you lost all capital. Position is liquidated.
Leverage Calculation
Leverage = Position size / Your margin
Examples:
Position $10,000, margin $1,000 → leverage 10×
Position $5,000, margin $1,000 → leverage 5×
Required margin = Position size / Leverage
For a $10,000 position with 10× leverage, you need $1,000 margin.
Liquidation
When losses reach a critical level, the exchange forcibly closes the position. This is called liquidation.
Example:
You have $1,000 and 10× leverage. Long on BTC at $50,000.
Liquidation price: ~$45,500 (−9%). If the price drops to this level, you lose almost all capital.
The higher the leverage, the closer the liquidation price.
Leverage and Risk
Approximate price movement until liquidation (depends on fees and margin type):
2×
~50%
5×
~20%
10×
~10%
20×
~5%
50×
~2%
125×
~0.8%
With 125× leverage, a price movement of just 0.8% against you will result in total capital loss.
⚠️ Risks
Rapid capital loss — with 10× leverage, a 10% drop = 100% capital loss.
Forced liquidation — the exchange will close the position without your involvement.
Funding fees — on futures, you pay funding rate for holding the position.
Emotional pressure — high leverage creates stress.
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