Leverage
Leverage means using a small amount of money to open a larger crypto position. This can increase both your gains and your losses.
What is leverage?
The money you put up is called margin. It acts as a buffer for your position. The leverage tells you how much larger your position is than that buffer.
For example, with 10x leverage, you open a position that’s ten times the size of your margin. So price changes affect the entire position, not just the money you put up.
Leverage is most common in spot margin trading and futures. With futures, you trade a contract that tracks the price of crypto. You usually don’t own the crypto itself.
An example of leverage
You use $100 as margin and open a $1,000 position with 10x leverage. If the price rises by about 1%, your gain is roughly $10. That’s about 10% of your margin.
If the price falls by about 1%, you lose roughly $10. This doesn’t include fees or other platform rules. It shows how even a small price move can have a big impact.
Why is leverage important in crypto?
Crypto prices can move quickly. With leverage, those moves can lead to large gains or losses in a short time. The higher the leverage, the smaller your buffer against an unfavorable price move.
If your buffer gets too low, a platform may automatically close your position. This is called liquidation. You could lose a large part of your margin, or even all of it. In fast-moving markets, your position may also be closed at a worse price than expected.
That’s why leverage often comes up in news about futures, liquidations, or longs and shorts. High leverage doesn’t automatically mean the price will move in a particular direction. It mainly means that price movements and risks are greater for these positions.
