The secret of leverage: How to trade larger positions with minimal capital?

Basic Knowledge - Borrowed Capital in the Background

Leverage is based on the fact that a trader opens larger positions using borrowed funds than what is available in their own wallet. This enhances the buying and selling capacity, allowing you to trade with more money than your original investment.

In the world of cryptocurrency markets, traders most commonly use perpetual futures contracts or margin trading for leverage. This instrument offers strong profit potential; however, it can also act as a cause of significant losses, especially alongside the high volatility of cryptocurrencies.

What exactly does leveraged trading mean?

Leverage means that by using a small amount of initial capital, you can gain access to much larger value assets. In reality, you are using borrowed money to speculate on financial products such as digital currencies, indices, commodities, or currency pairs.

Essentially, leverage increases your selling and buying power. You can trade as multiples of your initial capital.

The level of leverage is expressed as a ratio: 1:5 (5x), 1:10 (10x), 1:20 (20x). This ratio indicates the multiplier of your initial investment with which you can trade. For example: your 100 USD capital with 10x leverage is equivalent to a purchasing power of 1000 USD.

Some trading platforms offer up to 100x leverage, although this is usually more limited for new users.

Margin trading in practice: How does it work?

Initial Margin (

Before opening any leveraged position, it is necessary to place an initial margin on the trading account. This serves to secure the borrowed funds.

Initial Margin = Total Position Value ÷ Leverage Factor

For example: you want to buy ETH worth 1000 USD with 10x leverage.

• Required initial margin: 1000 ÷ 10 = 100 USD

The same amount with 20x leverage: 1000 ÷ 20 = 50 USD

The basic rule: the higher the leverage, the greater the risk of liquidation )liquidation(.

) Maintenance Margin ###

After the initial margin, you must also maintain a minimum balance. If the market movement goes against you and your balance falls below the maintenance margin, you will need to deposit additional funds into your account to avoid liquidation.

The difference between the two: the initial margin is required to open the position, while the maintenance margin is necessary to keep it.

Long position: When to expect a price increase?

Let's say you want to open a BTC long position worth 10,000 USD with 10x leverage.

Required collateral: 1000 USD

( The case of the profit: If the Bitcoin price increases by 20%, you will realize a net profit of 2000 USD after deducting the fees ). This is much higher than the 200 USD you could withdraw without leverage from 1000 USD.

The case of loss:

If BTC decreases by 20%, the position value drops by 2000 USD. Since you only have 1000 USD available as collateral, liquidation will occur – your balance will decrease to zero. Moreover, even a 10% drop can lead to liquidation, depending on which platform you are trading on.

The solution: Stop-loss order or adding further collateral to limit the loss.

Short position: Profit hitting on declining price

If you believe that the BTC price will decrease, you can open a short position. You short $10,000 worth with 10x leverage.

Collateral: again 1000 USD

( Profitable scenario: The price of Bitcoin is dropping from 40,000 USD to 32,000 USD, a 20% decrease. You buy back the 0.25 BTC at a lower price and keep the difference as 2,000 USD profit.

) Loss-making scenario: The price of Bitcoin jumps from 40,000 USD to 48,000 USD with a 20% increase. The repurchase incurs an additional cost of 2000 USD, which is not covered by the 1000 USD collateral, so liquidation occurs.

Why do traders use leverage?

1. Multiplication of potential profit The main motivation is clear: a few percentage points of movement in the initial capital can lead to significant profits if you use leverage.

2. Improving capital efficiency Instead of investing your entire capital in a position, you can trade with reduced margin. The money released this way can be used to purchase another asset, for staking, or to provide liquidity.

For example: using 10 times instead of 4 times leverage leaves more capital mobile.

How do you reduce risk with leverage?

1. Choosing a lower leverage

Higher leverage operates with greater fault tolerance. 5x or 10x is much safer than 50x or 100x.

2. Stop-loss and Take-profit orders

• Stop-loss: Automatic position closure below loss limit
• Take-profit: Closing profit at a predetermined level

This is the most effective method for preventing liquidation.

( Position Size Management Don't put all your capital into one position. Diversify into multiple lower-leveraged positions.

) Monitoring market volatility Higher volatility = greater risk of liquidation. Accordingly, reduce leverage or increase collateral.

What will you learn about leverage?

Leverage is like a double-edged sword: it can exponentially increase both profits and losses. The extreme volatility of the cryptocurrency markets exacerbates this risk.

Key Rules:

• Never trade with money you can't afford to lose.
• Study the trading products before leverage
• Approach position sizing responsibly
• Learn how to calculate stop-loss and take-profit levels

Margin trading is indeed an opportunity for quick profits, but it requires awareness and discipline for both.

Disclaimer: This text serves as general information and educational purposes and should not be considered financial, legal, or professional advice. You are responsible for your investment decisions and any losses incurred. The information provided here does not constitute a product or service recommendation.