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 the collateral a trader provides to open and maintain a leveraged trading position. It is not the same as the total value of the position.

Liquidation

Liquidation occurs when a leveraged trading platform forcibly reduces or closes a position because the trader no longer has enough margin to satisfy the required maintenance margin.

Long / Short

A long position generally benefits when an asset rises in price, while a short position generally benefits when it falls.