What is leverage?
Leverage is essentially a loan from the exchange. The number 'X' indicates how many times you are borrowing.
For example, with 1000 USDT at 5x leverage, you can open a position of 5000 USDT, thus increasing potential profit by 5 times.
But there is an important point - you also bring the liquidation price 5 times closer. The exchange will not lose its money, so it will close the position before it starts incurring losses — that is, when your margin is exhausted.
Types of leverage: cross margin and isolated margin
1. Isolated margin
Imagine you opened a position of 1000 USDT with a 10x leverage. In this case, your margin (collateral) will be 100 USDT. In isolated margin mode, the position is secured only by this collateral, not by all funds in the futures account.
Examples:
Example 1: You opened a position of 1000 USDT with a 5x leverage → margin = 200 USDT. With a 20% drop in the asset price, liquidation will occur (margin/position size*100% = percentage movement of the asset you have in reserve).
Example 2: Position of 1000 USDT with a 10x leverage → margin = 100 USDT.
Liquidation will occur with a price drop of 10%.
Advantages:
If you make a mistake, you will only lose the amount you contributed to the margin, not the entire account balance.
Disadvantages:
Higher chance of liquidation.
You need to manually adjust the margin.
With multiple open positions, margin is not automatically redistributed.
For example, one trade is at a loss, another is in profit — the first can be liquidated even if the second has a profit.
2. Cross margin
In this mode, all funds in the futures account work as collateral for the position: free money and even unrealized PnL from other trades.
Example:
You opened a position of 1000 USDT with a 5x leverage → margin = 200 USDT.
You have 500 USDT in your account — the entire amount goes into collateral.
The liquidation price will be at: 500 / 1000 × 100% = 50%
That is, if the asset price moves against you by 50% — liquidation will occur and you will lose all 500 USDT.
Advantages:
Reduced liquidation risk due to overall balance.
Automatic support for positions.
Disadvantages:
There is a risk of losing all capital if the position goes significantly negative.
💡 Test to reinforce the material:
You are in isolated margin mode.
Account balance: 700 USDT
You opened a position of 1500 USDT with a 5x leverage.
❓ Question:
By how many percent should the price drop for the position to be liquidated?
How much will you lose?
Please write your responses in the comments, you can also ask your questions and simply write your suggestions.
