What is Leverage?
Leverage is the use of borrowed capital to increase potential returns on investment. In cryptocurrency trading, it allows traders to open positions larger than their actual account balance by using margin trading.
Understanding Leverage
Example
With 10x leverage, a $1,000 investment can control a $10,000 position.
Risk Levels
- 2x-5x: Lower risk, common in traditional markets
- 10x-20x: Medium risk, common in crypto
- 50x-100x: High risk, experienced traders only
Important Considerations
Amplified Effects
- Gains are multiplied by leverage amount
- Losses are also multiplied
- Higher leverage means faster liquidation risk
Risk Management
- Use appropriate position sizing
- Monitor margin levels closely
- Have clear exit strategies
- Understand liquidation prices
Related Terms
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