Leverage
Leverage uses borrowed funds to increase position size, amplifying both gains and losses.
- Type
- marketsderivatives
- Also known as
- marginleverage trading
Traders post collateral to open positions larger than their equity. Exchanges enforce maintenance margins and liquidate positions that breach risk limits.
"With 5x leverage, a 10% adverse move wipes out the initial margin, triggering liquidation if not managed."
"Cross margin shares collateral across positions; isolated margin ring-fences risk per position."
Leverage increases volatility of P&L, requires disciplined risk management, and can cascade in stressed markets due to forced liquidations.
"Stop-loss orders and conservative position sizing help contain tail risk."
"Funding rates on perpetual swaps influence the cost of holding a leveraged position over time."
Related Terms
Futures
→A derivatives contract to buy or sell an asset at a predetermined price at a future date; in crypto, perpetual futures (no expiry) are most common.
Funding Rate
→A periodic payment exchanged between longs and shorts on perpetual futures to keep contract prices anchored to spot.
Liquidation
→Liquidation is the forced closure of a leveraged position when collateral is insufficient to cover losses, protecting the exchange or lenders.
All terms and definitions may update as the Cryptionary improves.
