> ## Documentation Index > Fetch the complete documentation index at: https://docs.limora.finance/llms.txt > Use this file to discover all available pages before exploring further. # Leverage Guide > How to trade with leverage ## 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). ``` Position Size = Collateral × Leverage ``` 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% | *Based on 100 USDC collateral. Returns are theoretical maximums before fees/liquidation.* *** ## Margin Explained ### Initial Margin The collateral you deposit to open a position. This is your skin in the game. ``` Initial Margin = Position Size / Leverage ``` ### Maintenance Margin The minimum equity required to keep your position open. Typically 10% of position size. ``` Maintenance Margin = Position Size × 10% ``` ### Available Margin How much buffer you have before liquidation. ``` Available Margin = Collateral + Unrealized P&L - Maintenance Margin ``` *** ## 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 Price = Entry Price × (1 - (Initial Margin - Maintenance Margin) / Position Size) ≈ Entry Price × (1 - 0.9 / Leverage) ``` **Short Position:** ``` Liquidation Price = Entry Price × (1 + (Initial Margin - Maintenance Margin) / Position Size) ≈ Entry Price × (1 + 0.9 / Leverage) ``` ### Liquidation Examples * Entry Price: $50,000 - Leverage: 10x - Liquidation Price: $50,000 × (1 - 0.9/10) = **\$45,500** - Distance: 9% below entry * Entry Price: $50,000 - Leverage: 25x - Liquidation Price: $50,000 × (1 - 0.9/25) = **\$48,200** - Distance: 3.6% below entry * Entry Price: $50,000 - Leverage: 10x - Liquidation Price: $50,000 × (1 + 0.9/10) = **\$54,500** - Distance: 9% above entry *** ## Risk Management ### Position Sizing Never risk more than you can afford to lose. A common rule: ``` Max Position Risk = Total Capital × 1-5% ``` **Example:** With 10,000 USDC capital and 2% risk per trade: * 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 **Example:** * Risk (to stop-loss): 50 USDC * Reward (to take-profit): 100 USDC * Ratio: 1:2 ✓ ### Leverage Selection Guide **Best for:** - Beginners - Swing trades (days to weeks) - Volatile market conditions - Conservative strategies **Best for:** - Intermediate traders - Day trades - Clear trend setups - Moderate risk tolerance **Best for:** - Experienced traders - Short-term scalps - High-conviction plays - Strict risk management **Best for:** - Professional traders only - Very short timeframes - Small position sizes - Expert-level risk control *** ## Common Mistakes Avoid these leverage-related mistakes that can wipe out your capital. Using maximum leverage on every trade. Even experienced traders rarely use more than 10-50x. **Fix:** Start with 2-5x and only increase as you gain experience. 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. Risking a significant portion of capital on a single trade. **Fix:** Limit each trade to 1-5% of total capital. Adding to a losing leveraged position, increasing exposure and risk. **Fix:** Accept losses, don't compound them. 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: ``` True Exposure = Collateral × Leverage ``` **Ask yourself:** * "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 * Long-term holds: 2-3x max - Swing trades: 3-5x - Day trades: 5-10x - Scalps: 10-25x (experienced only) Before major news events (FOMC, CPI, earnings), reduce leverage or close positions. Volatility spikes can trigger liquidations. Leverage should help you reach appropriate position sizes with less capital, not to maximize exposure beyond your risk tolerance. 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 | *** ## Next Steps Protect your leveraged positions. Understand trading costs.