Leverage: a bigger trade, a closer exit
Borrowed size, your money at risk
With 10× leverage, $1,000 of your own money controls a $10,000 position. Every 1% the price moves is 10% of your money, in either direction.
Liquidation comes first
At 10×, a move of about 10% against you wipes out your deposit and the exchange closes the position for you. At 50×, it takes about 2%. Bitcoin can move 2% on an ordinary afternoon.
Right about the direction, wiped out anyway
The price dips 12%, then rallies 40%. Without leverage you'd end up well ahead. At 10× you were liquidated on the dip and own none of the rally.
Costs grow with the size
Fees are charged on the whole position, not on your deposit, and keeping a leveraged position open usually costs a funding fee as well. At 10×, costs eat your money ten times as fast.
Check yourself
At 20× leverage, roughly how far does the price have to move against you to wipe out your deposit?
- About 5%
- About 20%
- About 50%
Show the answer
About 5% — 100% divided by 20 is 5%. Leverage multiplies every move, so an ordinary dip becomes the loss of everything you put in.