What is Leverage?
Using borrowed exposure so a small price move produces a large gain or loss.
At 10× leverage a 10% move against you wipes out the position; the exchange closes it before your margin goes negative. Leverage does not change the asset's volatility, only your exposure to it.
It also changes market structure: crowded leverage and tight stop levels produce liquidation cascades that spot-only models have to absorb.
Related terms
- Perpetual futuresTrading
A derivative that tracks an asset with no expiry, held open by periodic funding payments.
- LiquidationTrading
Forced closing of a leveraged position when its margin falls below the maintenance level.
- MarginTrading
The collateral you post to hold a leveraged position, and what a liquidation consumes.