Encyclopedia Classification
Category: Derivatives • Risk Management • Advanced Trading Mechanics
Discipline: Futures • Margin • Liquidation Management • Capital Efficiency
Prerequisites
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Article 180 — Risk Management: The Foundation of Professional Trading
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Article 181 — Position Sizing: The Mathematics of Capital Allocation and Trade Survival
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Article 179 — Investor Psychology: Fear, Greed, Cognitive Biases, and the Mental Game of Trading
Related Articles
Futures Trading • Perpetual Contracts • Funding Rates • Liquidation Mechanics • Market Structure • Risk Management
Definition
Leverage is the use of borrowed capital to increase exposure to an asset beyond the amount of capital a trader personally owns.
In cryptocurrency markets, leverage allows traders to control larger positions using a smaller amount of collateral.
Example:
Without leverage:
\$1,000 capital
controls:
\$1,000 position.
With 10x leverage:
\$1,000 collateral
controls:
\$10,000 position.
The central idea:
Leverage does not create an edge. It only magnifies the result of the edge you already have.
Beginner Explanation
Imagine owning a rental property.
You have:
\$100,000.
You buy:
One property.
A bank offers financing.
Now you control:
Five properties.
If prices rise:
Your gains are amplified.
If prices fall:
Your losses are amplified.
Leverage increases opportunity.
It also increases risk.
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