What is leverage?
Leverage lets you control a larger position than your capital would normally allow. If you have $1,000 and use 10x leverage, you control a $10,000 position. Your profit or loss is calculated on the full $10,000 — not just your $1,000.
This means a 5% price move results in a 50% gain or loss on your capital.
How margin works
Margin is the collateral you put up to open a leveraged position. There are two types:
Isolated margin — only the margin allocated to a specific position is at risk. If liquidated, you only lose that margin.
Cross margin — your entire account balance serves as margin for all positions. This gives more room before liquidation but puts your full balance at risk.
Understanding liquidation risk
The higher your leverage, the closer your liquidation price. Here's how much the price needs to move against you before liquidation:
2x leverage — ~50% price move 5x leverage — ~20% price move 10x leverage — ~10% price move 25x leverage — ~4% price move 50x leverage — ~2% price move
Always set stop-loss orders to protect your position before it reaches liquidation.
Risk management tips
Never risk more than 1-2% of your account on a single trade. Use stop-loss orders on every position. Start with lower leverage (2-5x) until you understand how the market moves. Avoid adding to losing positions.
The best traders aren't the ones with the highest leverage — they're the ones who survive long enough to compound their gains.