Leverage
Using borrowed capital to increase the potential return of an investment. In crypto trading, leverage allows traders to control larger positions with smaller amounts of capital.
Why It Matters
Leverage allows traders to borrow funds to increase their trading positions beyond their initial investment. Understanding leverage is important as it magnifies both potential gains and losses, making risk management essential in cryptocurrency trading.
Example
For example, if you have $1,000 and use 10x leverage, you could potentially trade with $10,000. While this increases your possible profits, it also means that even a small market drop can wipe out your investment.
Beginner Context
For those new to crypto, understanding leverage is critical for successful trading. It highlights the balance between opportunity and risk, urging new investors to tread carefully when considering leveraged trades.
Mike Starr
Founder, CryptoWizardTools · M.S. Organizational Management
Last reviewed: August 2026
Related Calculators
Related Articles
Related Terms
Liquidation
When a leveraged trading position or undercollateralized loan is forcibly closed by a protocol to prevent losses exceeding the deposited collateral. Liquidation typically happens automatically when the collateral value falls below a set threshold.
Short Selling
A trading strategy where an investor borrows and sells an asset they don't own, hoping to buy it back at a lower price later and profit from the difference. In crypto, shorting is done through derivatives, margin trading, or futures contracts.
Volatility
The degree of price fluctuation of an asset over time. Cryptocurrencies are generally considered more volatile than traditional assets.