L'INFORMATEUR CRYPTOLeverage: definition
Leverage lets you open a position larger than the capital committed. It multiplies gains and losses alike.
Definition
With x10 leverage, $100 of margin opens a $1,000 position. A 1% price move becomes a 10% move on your margin, up or down.
Leverage and ROE
The result of a leveraged trade is often expressed as ROE (return on margin): price change × leverage. A x70 SHORT on Bitcoin that drops 1.5% returns about +107% of the margin committed, but a 1.1% rise costs about −77%.
Best practices
- Think in risk per trade (for example 1 to 2% of capital) rather than in leverage.
- Choose the position size from the distance to the stop loss.
- Check the liquidation price before entering.
Frequently asked questions
What leverage should a beginner use?
As low as possible, ideally x1 to x3, while learning risk management. High leverage only makes sense with a very tight stop and a calculated position size.
Does leverage increase fees?
Fees are calculated on the total position size, not on the margin: at x10, they weigh ten times more on your margin.