Leverage Guide
Leverage amplifies both your potential profits and losses. This guide helps you understand how to use leverage responsibly.What is Leverage?
Leverage allows you to control a larger position than your capital would otherwise allow. It’s expressed as a multiplier (e.g., 10x).Simple Example
With 100 USDC and 10x leverage: - You control a 1,000 USDC position - A 1%
price move = 10% gain/loss on your collateral - A 10% price move = 100%
gain/loss on your collateral
Leverage Comparison
| Leverage | Position Size | 1% Move | 5% Move | 10% Move | Liquidation Distance |
|---|---|---|---|---|---|
| 2x | 200 USDC | ±2% | ±10% | ±20% | ~45% |
| 5x | 500 USDC | ±5% | ±25% | ±50% | ~18% |
| 10x | 1,000 USDC | ±10% | ±50% | ±100% | ~9% |
| 25x | 2,500 USDC | ±25% | ±125% | ±250% | ~3.6% |
| 50x | 5,000 USDC | ±50% | ±250% | ±500% | ~1.8% |
| 100x | 10,000 USDC | ±100% | ±500% | ±1000% | ~0.9% |
Margin Explained
Initial Margin
The collateral you deposit to open a position. This is your skin in the game.Maintenance Margin
The minimum equity required to keep your position open. Typically 10% of position size.Available Margin
How much buffer you have before liquidation.Liquidation
What is Liquidation?
When your position’s losses approach your collateral, the protocol automatically closes your position to prevent negative equity.Liquidation Price
The price at which your position will be liquidated: Long Position:Liquidation Examples
- 10x Long
- 25x Long
- 10x Short
- Entry Price: 50,000 × (1 - 0.9/10) = $45,500 - Distance: 9% below entry
Risk Management
Position Sizing
Never risk more than you can afford to lose. A common rule:- Maximum risk per trade: 200 USDC
- With 10x leverage: Use 200 USDC collateral maximum
Risk-Reward Ratio
Before entering a trade, determine:- Your stop-loss (max loss)
- Your take-profit (target gain)
- Aim for at least 1:2 risk-reward ratio
- Risk (to stop-loss): 50 USDC
- Reward (to take-profit): 100 USDC
- Ratio: 1:2 ✓
Leverage Selection Guide
Low Leverage (2-5x)
Best for: - Beginners - Swing trades (days to weeks) - Volatile market
conditions - Conservative strategies
Medium Leverage (5-10x)
Best for: - Intermediate traders - Day trades - Clear trend setups -
Moderate risk tolerance
High Leverage (10-25x)
Best for: - Experienced traders - Short-term scalps - High-conviction
plays - Strict risk management
Extreme Leverage (25x+)
Best for: - Professional traders only - Very short timeframes - Small
position sizes - Expert-level risk control
Common Mistakes
Over-leveraging
Over-leveraging
Using maximum leverage on every trade. Even experienced traders rarely use
more than 10-20x. Fix: Start with 2-5x and only increase as you gain
experience.
No stop-loss
No stop-loss
Trading with leverage without a stop-loss is gambling. One big move can
liquidate you. Fix: Always set a stop-loss before the trade executes.
Position too large
Position too large
Risking a significant portion of capital on a single trade. Fix: Limit
each trade to 1-5% of total capital.
Averaging down
Averaging down
Adding to a losing leveraged position, increasing exposure and risk.
Fix: Accept losses, don’t compound them.
Ignoring fees
Ignoring fees
Forgetting that fees and interest eat into profits, especially on short-term
trades. Fix: Factor in all costs when calculating expected returns.
Calculating Your True Exposure
Use this formula to understand your real risk:- “Would I be comfortable losing my entire collateral?”
- “What if the position moves against me overnight?”
- “Can I afford to be wrong on this trade?”
Practical Tips
Match leverage to timeframe
Match leverage to timeframe
- Long-term holds: 2-3x max - Swing trades: 3-5x - Day trades: 5-10x - Scalps: 10-25x (experienced only)
Reduce leverage in uncertainty
Reduce leverage in uncertainty
Before major news events (FOMC, CPI, earnings), reduce leverage or close
positions. Volatility spikes can trigger liquidations.
Use leverage to size, not to gamble
Use leverage to size, not to gamble
Leverage should help you reach appropriate position sizes with less capital,
not to maximize exposure beyond your risk tolerance.
Keep track of all positions
Keep track of all positions
With multiple leveraged positions, your total exposure can quickly exceed
comfortable levels. Monitor aggregate risk.
Leverage Calculator
Estimate your position parameters:| Input | Value |
|---|---|
| Collateral | 100 USDC |
| Leverage | 10x |
| Entry Price | $50,000 |
| Direction | Long |
| Output | Value |
|---|---|
| Position Size | 1,000 USDC |
| Liquidation Price | $45,500 (-9%) |
| +5% Price Move | +50 USDC (+50%) |
| -5% Price Move | -50 USDC (-50%) |
| Opening Fee | 0.80 USDC |