Leverage trading allows traders to borrow funds to open positions larger than their actual account balance. It increases both potential profits and potential losses. Leverage is expressed as a ratio (e.g., 5x, 10x), showing how many times a position is amplified compared to the trader’s own capital. While it offers the chance for higher returns, leverage also introduces the risk of liquidation.
Example:
With 10x leverage, a trader who has $1,000 can open a $10,000 Bitcoin position. If the price rises by 5%, the trader earns $500 instead of $50. But If the price falls by 10%, the position is liquidated and the $1,000 margin is completely lost.