Leverage

Leverage amplifies trading exposure beyond your actual capital, multiplying both potential gains and losses by the leverage factor. With 10x leverage, $100 controls $1,000 of position value: a 10% move in your favor yields 100% returns, but a 10% adverse move eliminates your entire position through liquidation. Leverage is available through margin trading (borrowing to increase position size), perpetual futures (inherent leverage through low margin requirements), and DeFi lending loops (depositing, borrowing, redepositing). Each mechanism has different risk profiles, funding costs, and liquidation parameters. Leverage greatly increases capital efficiency, you can take meaningful positions without committing large amounts of capital, but the risk amplification catches most retail traders. Studies consistently show the vast majority of leveraged retail traders lose money, primarily through liquidations during volatility spikes. The psychological pressure of leveraged positions compounds poor decision-making: positions get stopped out at the worst moments, and the fear of liquidation often causes premature exits or doubled-down mistakes. Professional traders use leverage selectively with strict risk management: position sizing based on maximum acceptable loss, stop losses to prevent liquidation, and leverage levels appropriate to asset volatility. Higher leverage isn't better; appropriate leverage is better.