What leverage does
With leverage you control a bigger position than the money you put in. That money is your margin. At 10x, $100 of margin controls a $1,000 position.
Gains and losses grow together
A 5% price move on a $1,000 position is $50. On your $100 margin that is a 50% gain, or a 50% loss. The coin only moved 5%, but your money moved ten times as much.
Liquidation
If losses eat almost all of your margin, the exchange closes the trade for you. This is liquidation. At 10x it can happen after a move of roughly 10% against you, and a bit sooner because of fees. At 50x, a 2% move is enough.
Example
You open a 20x long on ETH with $50 margin, so the position is $1,000. ETH drops 4%. You lose $40, which is 80% of your margin. One more small drop and you are liquidated.
Remember
- Higher leverage = smaller move needed to wipe you out.
- Use a stop-loss so you decide the exit, not the liquidation engine.
- Practise first with paper trading.