Leverage in trading means borrowing funds from a broker or exchange to increase the size of your trade beyond what your own capital allows. It amplifies both potential profits and potential losses.
🧮 How Leverage Works:
Suppose you have $100 and use:
- 1x leverage → You trade with $100 (no borrowing)
- 5x leverage → You trade with $500
- 10x leverage → You trade with $1,000
- 100x leverage → You trade with $10,000
A 10% move on a 10x leveraged position could give you a 100% gain or loss.
⚠️ Key Concepts:
| Term | Meaning |
|---|---|
| Margin | Your own capital used in a leveraged trade |
| Liquidation | If the trade moves against you too much, the exchange closes your trade |
| Position size | Total value of the trade (margin × leverage) |
| Risk | Higher leverage = smaller price move needed to wipe out your margin |
📈 Example:
- You open a $1,000 position on Bitcoin with 10x leverage, using only $100 of your own funds.
- If BTC goes up 5%, your position grows by 50% (5% × 10).
- But if BTC drops just 10%, you’re liquidated and lose your $100.
✅ Used In:
- Futures and margin trading on platforms like Bybit, Binance, Bitget, etc.