Leverage
What is leverage? π’
Leverage is a powerful tool that allows traders to control a position much larger than the capital they have available, by borrowing funds. This enables traders to amplify both their potential profits and their potential losses.
When using leverage, traders can speculate on the price movement of assetsβeither upwards (long) or downwards (short)βusing a smaller amount of their own money compared to the value of the position. This makes leverage an appealing option, but also a risky one, due to the magnified effects of both gains and losses.
How it Works βοΈ βοΈ
For example, with 10x leverage, a trader can open a position worth $10,000 with only $1,000 of their own capital. This means that a small 1% increase in the asset price would yield a 10% profit on the trader's capital. Conversely, a 1% decrease in the asset price would result in a 10% loss, showcasing the risks and rewards associated with leverage.
Benefits of Leverage π π
Amplified Returns: Leverage enables traders to amplify their potential profits, which is particularly appealing when trading with smaller capital.
Capital Efficiency: Leverage allows traders to keep more of their capital available for other opportunities, effectively increasing the efficiency of their investments.
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