Leverage: trading with borrowed capital

How Leverage Magnifies Both Sides

Leverage means using borrowed funds to take a position larger than your own collateral would support. If you deposit $1,000 and trade at 10x leverage, you control a $10,000 position. A 1% price move in your favor becomes a 10% gain on your collateral; the same 1% against you becomes a 10% loss. Crypto exchanges commonly offer leverage from 2x up to 100x or more, far higher than traditional brokerages.

The mechanism is straightforward. You post collateral—called margin—and the exchange lends you the rest. Your position is monitored continuously. If losses eat into your margin past a maintenance threshold, the exchange forcibly closes your position to repay the loan. This is liquidation, and at 100x leverage a 1% adverse move is enough to wipe out the entire collateral.

Most leveraged crypto trading happens through perpetual futures, which never expire and use a funding rate to tether the price to spot. The accessibility of high leverage is one reason crypto markets see sharp cascades: when price moves quickly, waves of forced liquidations push prices further in the same direction, triggering more liquidations. Used carefully, leverage is a precision tool. Used carelessly, it is the fastest way to lose money in any market.