Leverage & Liquidation
Amplified gains, amplified losses — understand before you touch it
What Is Leverage
Leverage lets you control a larger position than your actual capital. With $100 and 10x leverage, you open a $1,000 position.
The upside: gains are multiplied. A 5% move becomes a 50% gain on your capital.
The downside: losses are multiplied just as fast. A 5% move against you wipes out 50% of your capital. A 10% move liquidates you entirely.
For beginners: never use more than 2-3x leverage. Professional traders rarely use more than 5x.
How Leverage Changes Your Math
Your capital: $100
1x leverage: Position = $100. A 10% price move = $10 gain or loss.
5x leverage: Position = $500. A 10% price move = $50 gain or loss (50% of your capital).
10x leverage: Position = $1,000. A 10% price move = $100 gain or loss (entire capital).
20x leverage: Position = $2,000. A 5% move against you = liquidation.
Notice that with 20x leverage, you need only a 5% adverse move to lose everything. BTC moves 5% in a single hour regularly.
Liquidation — When You Lose Everything
Liquidation happens when your losses eat through your entire margin. The exchange closes your position automatically to prevent your balance from going negative.
Liquidation price formula (simplified):
Long: Entry Price × (1 - 1/Leverage)
Short: Entry Price × (1 + 1/Leverage)
Example: Long BTC at $95,000 with 10x leverage.
Liquidation at: $95,000 × (1 - 1/10) = $85,500
BTC only needs to drop ~10% from your entry and you lose 100% of your margin.
Isolated vs Cross Margin
Isolated Margin: only the collateral you assigned to this specific trade is at risk. If you get liquidated, you only lose that amount — the rest of your account is safe.
Cross Margin: your entire account balance is used as collateral. This gives you a buffer against liquidation, but a bad trade can drain your whole account.
Recommendation for beginners: always use Isolated Margin. Set the exact amount you are willing to lose as margin for each trade.
You open a Long BTC position at $100,000 with 10x leverage and $100 margin. At what price does liquidation occur?
- $90,000 — a 10% drop from entry
- $50,000 — a 50% drop
- $95,000 — a 5% drop
- $80,000 — a 20% drop