Technical Definition
Leverage
Leverage allows a trader to control a position larger than the capital committed to support it.
By Crypto University Editorial
MarginLiquidationLong / Short
✦ Key Insight
High leverage can cause a position to be liquidated after a relatively small adverse price movement.
✕ Common Misconceptions
Leverage does not create free buying power. It increases risk and can result in losses occurring much faster.
Detailed Explanation
A leveraged position magnifies exposure to price movements. This means both gains and losses can become larger relative to the trader's deposited capital.
In Practice
“A 10% adverse movement on a highly leveraged position can cause a much larger percentage loss relative to the trader's margin.”
Dig Deeper
Margin
Margin is capital deposited or maintained to support a leveraged trading position.
Liquidation
Liquidation is the forced reduction or closure of a leveraged or collateralized position when required risk or collateral thresholds are breached.
Long / Short
A long position generally benefits when an asset rises in price, while a short position generally benefits when it falls.