Trading · 63 / 86 · 2 min
Leverage, margin, and liquidation
Leverage means you control a larger position than the money you put up. A small move against you is magnified. Past a line, the position is closed for you.
Past the line, the position is closed for you. Move the sliders. The picture is the risk, not a setting to copy.
This shows when posted margin is gone. It does not tell you to use leverage.
A worked case
A position uses ten times leverage. The chart looks calm. A move of about ten percent against it wipes the margin. The person remembers the calm chart and not the line. The close is automatic.
What borrowed size does
With ten times leverage, a move of a few percent can wipe the margin you posted. The chart can look calm and still cross that line.
Not a how-to
This course will not tell you how much to lever or where to put the line. It will tell you the venue keeps the right to close you, and it charges for the privilege.
If you cannot name the liquidation price in money, you do not know the trade.
The calm chart and the line
Leverage on crypto venues became a retail product in the bull markets, with buttons for ten, twenty, a hundred times. The advertisement is the gain. The contract is the liquidation. At ten times, a move of about ten percent against you can wipe the margin you posted. Funding, if you are on a perpetual, can do it more slowly while you sleep. The 2022 collapses were full of positions that had looked fine on a Sunday and were gone on a Monday, on venues that did not ring anyone.
The slider on this page is the arithmetic of that sentence. It is not a setting. Venues have been criticised, and in some countries restricted, for offering this to people who could not name the liquidation price. Britain has taken a hard line on crypto derivatives for retail. The existence of a button in an app you can still reach does not mean the button is a good idea, or that it is aimed at you.
If you cannot write the wipe-out price in dollars before you click, you do not know the position. The venue does, and it keeps the right to close you, and it charges for the privilege.
Read it yourself
These links are the record. They are not a recommendation, and they are not instructions. A news story or a court paper can still be wrong about a detail. The check does not change because a famous name is in the story.
Apply the check
Open a question. The line is about this topic. It is not a verdict that anything is safe.
The exchange, from the fee and from the liquidation.
The exchange's liquidation rule.
That rule, when the line is crossed.
Check yourself
Does leverage make a good idea safer because the gain is larger?
No. It makes the loss larger at the same speed.
After this you can name the price that wipes the margin, in money, before you add leverage.