Understanding Leveraged Trading: What You Need to Know

Leveraged trading lets you amplify your market exposure by borrowing funds from the exchange, controlling larger positions with a smaller initial deposit. Sounds appealing? Here's how it actually works.

The Mechanism Behind It
You deposit collateral—say 1 BTC valued at $40,000. With 5x leverage, you can command a $200,000 position in Bitcoin. When the price moves in your favor, your gains multiply. A 10% rally? You're looking at 50% profit on your collateral. But flip the script: a 10% decline wipes out half your capital.

A Quick Example
Imagine Ethereum trading at $2,000. You deposit $10,000 (5 ETH) and open a 3x leveraged long. Now you control $30,000 worth—effectively 15 ETH. If ETH climbs to $2,400, your position gains $6,000 (a 60% return on collateral). Conversely, if it drops to $1,800, you lose $6,000 instantly.

The Risk Reality
Liquidation is the silent killer. Exchanges maintain minimum collateral ratios. When your position moves against you and your margin falls below that threshold, exchanges auto-liquidate your position at market prices—often resulting in total loss. Volatility spikes, slippage, and flash crashes can trigger liquidations faster than you can react.

Pro tip: Leverage magnifies both wins and losses. Start small, always use stop-losses, and never bet capital you can't afford to lose.