# Leverage & Margin

## 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 = $50
```

**Key:** Leverage amplifies both gains AND losses equally.

## How Leverage Works

### Leverage Multipliers

| Leverage  | Capital Required | Position Size | Margin |
| --------- | ---------------- | ------------- | ------ |
| 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

| Market Type           | Maximum | Recommended |
| --------------------- | ------- | ----------- |
| **Spot Trading**      | 3x      | 1-2x        |
| **Perpetual Futures** | 20x     | 3-5x        |

### Risk by Leverage Level

| Leverage | Risk     | Liquidation Distance | Recommended For    |
| -------- | -------- | -------------------- | ------------------ |
| 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: 5x
```

Provides 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

| Leverage | Recommended Max Stop |
| -------- | -------------------- |
| 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](https://quantsedge.gitbook.io/quantsedge-docs/trading-fundamentals/risk-management) | [Position Sizing](https://quantsedge.gitbook.io/quantsedge-docs/trading-fundamentals/position-sizing) | [Order Types](https://quantsedge.gitbook.io/quantsedge-docs/trading-fundamentals/order-types)