Features of Leverage Trading

Leverage is the use of borrowed funds provided by the exchange, secured by the trader’s own deposit, allowing them to open a position larger than their actual capital. For example, with 10x leverage, a trader borrows funds from the exchange and can operate with an amount 10 times greater than their own. This increases potential profit but also sharply increases risk.

Risks of leverage trading

1. Losses increase in the same proportion as profits

2. Increased position volatility: even a small adverse price move can lead to technical liquidation of the position on the exchange side.

1. When a position loss reaches a critical level, the exchange automatically closes the position to protect its loaned funds — this is called liquidation. However, liquidation is not instantaneous: during sharp price moves, execution delays and slippage may occur. As a result, the position may be closed at a worse price than the calculated liquidation level. In extreme cases, losses may exceed the deposit, and the trader ends up with a negative balance. This is why it is critically important to set your own stop-loss significantly higher (for long) or lower (for short) than the calculated liquidation level.

3. Rapid drawdown due to insufficient control of risk and margin.

Let’s see how the same price movement affects the deposit at different leverage levels, for example (see Table 3):

• Deposit: 1,000 USDT

• Entry price: 27,000 USDT

• Price movement: -5% (drop to 25,650 USDT)

Table 3

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Conclusion in one sentence: with a 5% price drop, you lose 5% without leverage, 25% with 1:5 leverage, and half your deposit with 1:10 leverage.

Checklist: leverage trading safety

To minimize the risk of losing your deposit, strictly follow these rules:

1. Use moderate leverage (1:2–1:5 for most strategies)

2. Factor in leverage when calculating position size

3. Always use a stop-loss tied to the liquidation level

4. Monitor your margin level, especially with multiple open positions

5. Do not increase leverage after a series of winning trades.

The following checklist will help you systematically approach each trade involving leverage:

• 1. Determine the maximum allowable leverage for your strategy

• 2. Calculate position size based on leverage and risk level

• 3. Set a stop-loss at a safe distance from the liquidation level

• 4. Check the margin level and keep it above critical thresholds

• 5. When using high leverage, reduce the risk per trade to a minimum

• 6. Monitor overall deposit usage across all positions.

Common mistakes when using leverage

The most common mistakes in leverage trading that should be avoided:

1. Using the maximum available leverage without considering the risks

2. Opening a position without a stop-loss

3. Ignoring the liquidation level

4. Opening multiple leveraged positions simultaneously without monitoring total margin.

Leverage is a powerful tool that requires strict discipline and precise calculations. When used incorrectly, it can quickly turn from a profit amplifier into a source of serious losses.

Proper use of leverage is impossible without a clear exit plan. Let’s look at the main mechanisms for closing positions.