Glossary

Leverage

Leverage lets a trader open a position larger than the trader’s own capital by borrowing or by using margin.

Leverage is the ratio of the size of a position to the capital that backs it. A trader posts margin, which is collateral, and the venue lends the rest. A 10x position means the position is ten times the margin. The ratio is shown as a multiple, such as 5x or 20x.

Leverage multiplies gains and losses by the same factor. A small price move against the position can remove the whole margin. The platform then closes the position by force. This is called liquidation. A higher leverage ratio puts the liquidation price closer to the entry price.

Market-wide leverage is not directly visible. Analysts estimate it with indicators such as open interest, funding rates and liquidation volumes. Each indicator shows a part of the picture. High leverage in the market describes fragility, not direction, because it can unwind in either direction.