Leverage is a financial instrument that allows investors to increase their trading volume using less capital. In cryptocurrency trading, leverage enables traders to borrow money from a broker to open trades in sizes larger than their actual capital. For example, with a leverage of 1:10, a trader can use just $100 to open a trade worth $1,000.
However, leverage carries significant risks. Although it provides the opportunity for larger profits, it also increases the size of potential losses. If the market moves against the trader's expectations, losses can multiply as quickly as profits. In addition, the use of leverage requires careful risk management, otherwise the trader may face losses that exceed his initial capital.
It is important for traders to have a deep understanding of how leverage works and its mechanics before using it in cryptocurrency trading. It is always recommended to start with small amounts and use risk management strategies such as setting stop loss orders, to avoid large losses that may negatively impact your capital.
