Crypto glossary
Leverage
Leverage is the use of borrowed funds to open a trading position larger than your own capital, multiplying both potential gains and potential losses.
Leverage is expressed as a multiple. With 10x leverage, a trader posts $1,000 as collateral, called margin, and controls a $10,000 position. A 5% move in the trader's favor produces a 50% return on the margin, while a 5% move against it wipes out half of it.
In crypto, leverage is mainly offered through perpetual futures and margin trading on centralized exchanges, and increasingly on decentralized derivatives platforms. Some venues have offered 100x or more, far beyond what regulated stock brokers allow retail clients.
The central risk is liquidation: if losses approach the posted margin, the exchange closes the position automatically. When many traders use high leverage in the same direction, a modest price move can set off cascading liquidations that amplify volatility across the market.
Example
A trader opens a $50,000 long bitcoin position with $5,000 of margin at 10x. If bitcoin falls about 10%, the loss consumes the margin and the exchange liquidates the position.
Related terms
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