What leverage is
You put up capital, the venue lends you the rest, and you control a position larger than your
own funds. Gains and losses are calculated on the whole position and settle against your
capital only. Ten times leverage means a one per cent move produces a ten per cent change in
your money.
The lender is not taking that risk. When your capital is nearly exhausted the position is closed automatically. That is liquidation, and what remains of your margin is gone. The venue’s
exposure is protected by closing you out early, which is the mechanism the entire product
rests on.
2x leverage~50%
5x leverage~20%
10x leverage~10%
20x leverage~5%
Approximate adverse move required to liquidate, before fees and the maintenance margin, which
both bring it closer. The bar shows how much room the position has, and the point of the chart
is how quickly that room disappears.
The asymmetry people miss
A fifty per cent loss requires a hundred per cent gain to recover. This is true without
leverage and becomes decisive with it, because leverage makes the fifty per cent loss reachable
from a small market move. A position liquidated at ten times leverage has not lost ten per
cent of your capital; it has lost all of the capital committed to it.
That is the arithmetic. There is no strategy layered on top that changes it, and every
description of leverage as a tool for amplifying returns is describing the half of the
symmetry that sells.
The costs that run while you wait
Borrowed funds accrue interest, and perpetual contracts add a funding rate paid between the
two sides at intervals. When the market is crowded on one side, holders of that side pay,
sometimes substantially, and it compounds over days.
Neither cost appears in the unrealised profit figure the interface shows. A position that is
flat on price for a week can be meaningfully down once funding is settled, which is how a
trade that was right about direction ends up losing money.
If you use it at all
Size the position so that liquidation would cost an amount you have already decided you can
lose, and treat that figure as the real position rather than the notional one. Everything else (entry, timing, the chart) is secondary to the size decision, and the size decision is
made before the ticket is open or it is not made at all.
Cross margin and isolated margin
Isolated margin confines a position’s collateral to that position: liquidation costs you what
you assigned to it and nothing else. Cross margin lets the whole account balance back every
open position, which delays liquidation and puts everything at risk when it finally arrives.
Cross is presented as the more sophisticated setting and behaves as the more dangerous one for
anybody not managing positions actively. Isolated is the sane default precisely because it
caps the loss at a number you chose in advance, which is the only mechanism on this page that
reliably works.
Liquidation is not the same as being closed at your stop
Both end the position and they are settled differently, which is a detail most people meet for
the first time at the worst moment.
A stop is your instruction, executed against the book at whatever price is available. A
liquidation is the venue protecting itself, and it usually carries a fee on top of the loss.
Where the position cannot be closed at a price that covers the margin, the shortfall is
absorbed by an insurance fund the venue maintains. If that fund is exhausted during a violent
move, some venues recover the remainder from profitable traders on the other side, which is a
possibility written into the terms and almost never mentioned in a guide.
The practical difference is control. A stop placed above the liquidation price ends the
position on your terms, with the remaining margin returned and no penalty. Relying on
liquidation as though it were a stop hands the timing, the price and the fee to the venue, and
it is the mechanism through which a leveraged loss becomes larger than the arithmetic of the
price move alone suggests.
Why the interface is not neutral
Leverage selectors default to values above one, position sizes are expressed in notional terms
that make the real exposure less visible, and unrealised profit is displayed prominently while
accrued funding is not. None of that is deceptive in a legal sense and all of it shapes
behaviour.
The counter is to compute the numbers outside the ticket: what you are risking, what move
liquidates it, and what the position costs per day to hold. If those three are not clear before
the ticket opens, the ticket will supply an answer and it will not be yours.
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