Leverage & Margin
Understand how leverage works and use it safely in your trading.
What is Leverage?
Leverage allows you to control larger positions with less capital.
Without Leverage:
$1,000 capital → $1,000 position → 1% move = $10
With 5x Leverage:
$1,000 capital → $5,000 position → 1% move = $50Key: Leverage amplifies both gains AND losses equally.
How Leverage Works
Leverage Multipliers
1x (None)
$1,000
$1,000
$1,000
2x
$500
$1,000
$500
5x
$200
$1,000
$200
10x
$100
$1,000
$100
20x
$50
$1,000
$50
Margin Explained
Initial Margin: Capital required to open position Maintenance Margin: Minimum to keep position open (50-80% of initial)
Example with 5x Leverage:
Position: $5,000
Initial margin: $1,000 (20%)
Maintenance margin: $750 (15%)
If position loses $250:
Remaining equity: $750
Triggers margin call ⚠️Available Leverage
Spot Trading
3x
1-2x
Perpetual Futures
20x
3-5x
Risk by Leverage Level
1x
Very Low
N/A
Beginners
2-3x
Low
33-50% move
Conservative
5x
Medium
20% move
Moderate
10x
High
10% move
Experienced
20x
Extreme
5% move
Professionals only
Understanding Liquidation
Your position is automatically closed when margin falls below maintenance level.
Liquidation Examples
Long with 5x Leverage:
Entry: $100
Liquidation: ~$80 (20% drop)
Short with 5x Leverage:
Entry: $100
Liquidation: ~$120 (20% rise)Preventing Liquidation
Safety measures: Use lower leverage, set stop losses before liquidation price, monitor positions actively, maintain excess margin, add margin when needed
Leverage Strategies
Conservative (2-3x)
Profile: Risk-averse, long-term positions, Liquidation: 50% adverse move, Stop loss: 10-15%
Capital: $10,000
Leverage: 2x
Position: $20,000
Wide room for error ✓Moderate (5x)
Profile: Experienced, medium-term trades, Liquidation: 20% adverse move, Stop loss: 5-8%
Capital: $10,000
Leverage: 5x
Position: $50,000
Balanced risk/reward ✓Aggressive (10x+)
Profile: Professional, short-term trades, Liquidation: 10% adverse move, Stop loss: 2-4%
Capital: $10,000
Leverage: 10x
Position: $100,000
Requires constant monitoring ⚠️Safe Leverage Usage
The 50% Rule
Never use more than 50% of available leverage:
Platform offers 20x → Max safe usage: 10x
Platform offers 10x → Max safe usage: 5xProvides safety buffer for volatility.
Position Sizing with Leverage
Calculate risk properly:
Without Leverage:
Position: $5,000
Stop: 4%
Risk: $200
With 5x Leverage:
Capital: $1,000
Position: $5,000
Stop: 4%
Risk: $200 (SAME!)
Leverage allows larger position,
but RISK stays constant.Stop Loss by Leverage
1-2x
10-15%
3-5x
5-8%
10x
2-4%
20x
1-2%
Leverage Scenarios
Successful Trade: 5x leverage on $1,000 capital → $5,000 position → 10% price move = 50% profit vs 10% without leverage
Failed Trade: 5x leverage with 5% stop loss = 25% capital loss vs 5% without leverage
Liquidation: 10x leverage without stops → 10% adverse move = 100% capital loss
Leverage Best Practices
Do: Start with low leverage (1-3x), always use stop losses, monitor positions actively, maintain excess margin, increase leverage gradually Don't: Use maximum leverage, trade without stops, let emotions override risk management, add to losing leveraged positions, ignore margin calls
Common Mistakes
Over-leveraging: Using 20x on first trade
Fix: Start 1-2x, increase slowly
No stop losses:
Hoping price recovers
Fix: Set stops before entry
Adding to losers:
Averaging down with leverage
Fix: Cut losses, don't add
Ignoring fees:
High leverage = high funding costs
Fix: Factor fees into profitability
Leverage is powerful but dangerous. Start small, use stops, respect risk limits.
Related: Risk Management | Position Sizing | Order Types
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