Leverage

What is Leverage?

Leverage allows you to control a larger position than your capital would normally allow. With 10x leverage, $1,000 controls a $10,000 position—amplifying both profits AND losses.

How Leverage Works

Example: 10x Leverage

You have $1,000 and use 10x leverage:

• Position size: $10,000
• If price goes up 5%: +$500 (50% profit on your $1,000)
• If price goes down 5%: -$500 (50% loss on your $1,000)
• If price goes down 10%: Liquidated (lost everything)

Leverage Math

Profit/Loss Calculation

P&L = Position Size × Price Change %
Actual P&L % = Leverage × Price Change %

Liquidation Price

Liquidation occurs when:
Loss = Initial Margin

For 10x long: ~10% price drop = liquidation
For 50x long: ~2% price drop = liquidation

Leverage Options

Leverage	Price Move to Double	Price Move to Lose All
2x	50%	50%
5x	20%	20%
10x	10%	10%
20x	5%	5%
50x	2%	2%
100x	1%	1%

Types of Leveraged Trading

Margin Trading

• Borrow from exchange
• Trade spot prices
• Interest charged
• Available on Binance, Kraken

Futures Trading

• Contracts, not actual crypto
• Perpetual or expiring
• Funding rates instead of interest
• Available on Bybit, OKX

Leveraged Tokens

• ERC-20 tokens with built-in leverage
• Rebalance automatically
• Decay over time
• Not for long-term holding

Risk Factors

Amplified Losses

• Losses magnified same as gains
• Can lose more than investment (with cross margin)
• Quick liquidation possible

Liquidation

• Forced closure of position
• Usually at worse price
• Liquidation fee charged
• Happens fast in volatile markets

Funding Costs

• Interest or funding rates
• Can accumulate significantly
• Erodes position over time

Who Uses Leverage?

Professional Traders

• Hedging strategies
• Short-term opportunities
• Strict risk management
• Capital efficiency

Retail Traders (Warning)

• Often use too much leverage
• Studies show 70-90% lose money
• Gambling behavior common
• Not recommended for beginners

Leverage Best Practices

If You Must Use Leverage

Keep It Low

• 2-3x maximum for beginners
• Never use maximum available
• Lower leverage = more margin for error

Use Stop Losses

• Set before entering trade
• Calculate liquidation price
• Don’t move stop losses further away

Size Positions Properly

• Risk 1-2% of capital per trade
• Account for leverage in sizing
• Smaller positions with higher leverage

Isolated vs Cross Margin

• Isolated: Only risk that position’s margin
• Cross: Entire balance at risk
• Use isolated for safety

Exchange Leverage Limits

Exchange	Max Leverage	Notes
Binance	125x	Futures only
Bybit	100x	Derivatives focus
Kraken	5x (US)	More conservative
Coinbase	None	Spot only in US

Leverage Regulations

Jurisdictional Limits

• US: Restricted access
• EU: 2x for retail (some products)
• Asia: Generally higher limits
• Varies by platform and product

Warning Signs of Problem Trading

• Using maximum leverage
• No stop losses
• Adding to losing positions
• Trading with money you can’t lose
• Emotional decisions
• Trying to “make back” losses

Alternatives to Leverage

Dollar-Cost Averaging

• Regular investments
• Less stress
• Proven long-term strategy

Spot Trading

• Own actual crypto
• No liquidation risk
• Sleep better at night

Options

• Defined risk
• More strategic
• Requires education

The Truth About Leverage

Statistics

• 70-90% of leveraged traders lose
• Most winners use low leverage
• High leverage = gambling

My Advice

If you’re reading this glossary entry, you probably shouldn’t use leverage yet. Learn spot trading first, understand risk management, and only then consider low leverage if you have a proven strategy.