What is leverage?

Borrowing in order to trade a position larger than your account balance.

Leverage multiplies gains and losses alike, and a modest move against the position can trigger liquidation. Retail access to leveraged crypto trading is capped or prohibited in a number of jurisdictions.

The framing that causes damage is thinking of leverage as a way to trade a small amount aggressively. It is the opposite: it is a way to hold a large position with a small deposit, and the position size is what determines your loss, not the deposit.

How it works

You post collateral, the venue lends you the rest of the notional, and your profit or loss accrues on the full notional. Ten times leverage on $1,000 means a $10,000 position: a 1 percent move in the underlying changes your equity by $100, which is 10 percent of what you put in.

Three costs and constraints ride along.

1. Fees are charged on notional, not on your deposit. A 0.05 percent taker fee on a $10,000 position is $5, which is 0.5 percent of a $1,000 deposit, paid on entry and again on exit.
2. Funding or interest accrues continuously. On a perpetual contract the funding rate transfers value between longs and shorts, typically every eight hours, and it is a running cost when you are on the paying side.
3. Liquidation ends the position before your deposit is fully spent, at the maintenance margin level, so you rarely lose exactly what you posted and never get to be right after being liquidated.

Availability is a legal question as much as a product one. The United Kingdom's Financial Conduct Authority has prohibited the sale of crypto derivatives and exchange-traded notes to retail consumers since January 2021, and the European Securities and Markets Authority's product intervention regime has long constrained leverage offered to retail clients in contracts for difference. Rules differ by country and change.

Example

Illustrative arithmetic. You have $1,000. Unleveraged, you buy $1,000 of an asset. It falls 20 percent and you have $800, and you still hold the asset.

Now take the same $1,000 at 10 times leverage, a $10,000 position with maintenance margin of 1 percent, or $100. A 9 percent fall costs $900, leaving $100 of equity, and you are liquidated. The asset then recovers. You do not, because your position no longer exists. The unleveraged buyer is down 9 percent on paper. The leveraged buyer is down 100 percent in fact, from the same 9 percent move.

Why it matters when you buy

For a spot purchase none of this applies, and that is worth stating plainly: buying an asset outright cannot be liquidated. If you are considering leveraged products, check first whether they are lawfully available to you on the jurisdiction pages and which venues offer them on the exchange pages. For a straightforward purchase, the fee comparison is the cost view that matters.

Related terms

• margin: the collateral backing a borrowed position
• liquidation: the forced close when equity runs out
• initial margin: what you post to open
• maintenance margin: the level that triggers liquidation
• funding rate: the running cost on a perpetual
• perpetuals: the most common leveraged crypto product

Questions

Can I lose more than I deposit?

On most retail venues, no, because liquidation happens before equity reaches zero and many offer negative balance protection. In extreme gap moves without that protection, a negative balance is possible.

Is low leverage safe?

Lower leverage means more distance before liquidation, not the absence of it. Two or three times leverage still turns a large adverse move into a forced exit.

Why can I not access leverage where I live?

Several regulators restrict or ban retail crypto derivatives, including the United Kingdom's Financial Conduct Authority. The jurisdiction pages record what is available where.