Leverage trading is a method of trading where you borrow funds to increase your position size, allowing you to control more capital than you actually own.
Simple Example:
Let’s say you have $100 and you use 10x leverage. This means you’re borrowing 10 times your amount to trade with $1,000.
• If the asset goes up 5%, your gain is $50 — a 50% return on your original $100.
• But if the asset goes down 5%, you lose $50, and if it drops 10%, your entire $100 is gone (liquidated).
Key Concepts:
• Leverage = Multiplier (e.g., 2x, 5x, 10x, 50x, etc.)
• Margin = Your actual capital
• Liquidation = When your loss hits your margin, your position is closed automatically
• Stop-loss = A tool to prevent complete liquidation
Why Use It?
• To amplify profits on small price moves
• To trade with less capital upfront
Why It’s Risky:
• It amplifies losses just as much as profits
• Small market moves can wipe you out if you’re not careful
• Requires strict risk management
Golden Rule:
Leverage doesn’t guarantee profit — it tests your discipline.
Used responsibly (like 2x–5x max), it can enhance gains. Used recklessly (20x+), it can wipe you out fast
.