What Is Leverage?
Leverage allows a trader to control a larger position than their actual capital would support — typically through margin, futures, or derivatives. Expressed as a ratio: 10x leverage means $1 of capital controls $10 of position.
Leverage amplifies both gains and losses proportionally. A 10% favorable move on a 10x leveraged position is a 100% gain. A 10% unfavorable move is a 100% loss — a wiped account. The asymmetry is brutal: leverage gives you the same upside as the underlying but with a hard floor where you blow up.
Retail crypto exchanges offering 100x+ leverage are essentially designed to liquidate users. Even professional traders rarely use more than 3-5x leverage sustained, and even that requires sophisticated risk management. For most retail traders, the right answer on leverage is zero or near-zero.
Related terms
- Margin — Borrowed money used to amplify trading positions beyond cash balance.
- Drawdown — The peak-to-trough decline in account equity during a losing streak.
- Risk Management — The systematic process of identifying and controlling exposure to losses.