What is Crypto Leverage?

Leverage is essentially “trading with borrowed power.” It allows you to open a position much larger than your actual account balance by using funds provided by the exchange.¹

• The Multiplier: If you have $100 and use 10x leverage, you are controlling a $1,000 position.²

• The Result: Your profits are calculated on the $1,000, not your original $100.³ However, your losses are also calculated on that larger amount.

The Basic Math

The relationship between your capital (margin), leverage, and position size can be expressed as:

• Position Size = Initial Margin * Leverage

• If the price moves in your favor by x%, your return on investment (ROI) is:

• ROI = x%* Leverage

3 Common Ways to Trade with Leverage

Type	How it Works	Best For
Margin Trading	You borrow funds directly from the exchange to buy more of a “spot” asset.	Traders wanting to hold actual assets while amplifying gains.
Futures Trading	You trade contracts representing the future price of a coin, rather than the coin itself.	Speculating on both price rises (Longs) and price drops (Shorts).
Options Trading	You pay a “premium” for the right to buy or sell at a specific price later.	Hedging or high-reward setups with strictly limited downside (the premium).

The “Double-Edged Sword”: Critical Risks

While the upside is tempting, leverage is the fastest way to lose capital in crypto due to these factors:

• Liquidation Risk: If the market moves against you by a small percentage, the exchange will automatically close your position to recover their borrowed funds. In a 10x trade, a mere 10% drop wipes out your entire 100% initial investment.  

• Extreme Volatility: Crypto prices can swing 5–10% in minutes. Leverage turns these normal fluctuations into “make or break” moments.

• Funding & Interest Fees: Borrowing isn’t free. You often pay “funding rates” (every 8 hours) or interest on the margin, which can eat your profits over time.  

• The Temptation of Overleveraging: Using 50x or 100x leverage is often compared to gambling. The “liquidation price” becomes so close to the entry price that almost any tiny market movement results in a total loss.

Survival Strategies

1. Use Stop-Losses: Always have an automatic exit plan to prevent total liquidation.

2. Start Low: Stick to 2x or 3x leverage until you are consistently profitable in spot trading.

3. Understand “Isolated” vs. “Cross” Margin: Isolated margin limits your risk to a single trade, while Cross margin uses your entire account balance as collateral.