What exactly is left leverage? The answers traders want to know most are here.

Don’t Be Fooled by Terms: Leverage Made Simple

Leverage, simply put, is using borrowed money to amplify your earning potential. You have 1,000 yuan but want to trade as if you had 10,000 yuan—that’s what it means.

Here’s a very relatable example: You want to buy an 80,000 yuan phone but only have 20,000 yuan. Borrow 60,000 yuan from a friend, buy the phone, and sell it a month later for 100,000 yuan. After paying back the debt, you earn 40,000 yuan—that’s a 200% return on your original 20,000 yuan investment. Without borrowing, you’d only earn 20,000 yuan (100% return). This “small input, big output” mechanism is the core logic of leverage.

The same principle applies in trading markets. You have $500, but the exchange allows you to trade Bitcoin with 10x leverage. This means you can control a position of $5,000. If BTC rises by 5%, you earn $250 (5% of $5,000); if it drops by 5%, you lose $250. Both gains and losses are magnified—that’s the most brutal part of leverage.

Why Are Traders So Crazy About Leverage?

Amplify Profits: Small funds can engage in large trades. Crypto markets are volatile; a 2% increase with 10x leverage becomes a 20% profit.

Flexible Allocation: You can open multiple positions simultaneously, diversifying risk and deploying a comprehensive strategy.

Bottom-Fishing Tool: During extreme market conditions, quick-reacting traders can use leverage to seize opportunities rapidly.

Friendly to Beginners: It’s the only way small retail investors can participate in high-level trading.

But the flip side of these benefits is—risks are also multiplied.

How to Use Leverage in Crypto Trading?

Suppose you open a position on an exchange. You have $1,000, and choose 5x leverage, so the system gives you an additional $4,000. Now, you can trade a $5,000 position in a certain coin.

If it rises 10%: Earn $500, ROI reaches 50%.

If it drops 10%: Lose $500, and get liquidated.

This explains why some can get rich overnight with leverage, while others go bankrupt overnight.

Long and Short Both Possible

Long: Bet on the coin price rising. Leverage amplifies this profit.

Short: Bet on the coin price falling. Leverage also magnifies short gains.

Many traders combine strategies—like going long on BTC and short on altcoins simultaneously—using leverage to amplify profits in both directions.

Three Forms of Leverage

Financial Leverage

The most common form. Borrowing money from exchanges or brokers to enlarge your position. Using a small margin to control a large amount of funds.

Example: You have 10,000 yuan, and the exchange lends you 90,000 yuan, so you can trade with 100,000 yuan.

Operational Leverage

This is a corporate concept. A company has fixed costs (rent, equipment, salaries). As sales grow, profits increase faster than sales.

Example: An e-commerce platform with fixed costs of 1 million yuan/month. When monthly sales hit 1 million yuan, profit is zero. At 2 million yuan sales, profit is 1 million yuan. Doubling sales more than doubles profit. But if sales drop to 500,000 yuan, the company incurs losses.

Combined Leverage

Considering both financial and operational leverage simultaneously, leading to more extreme risk and reward.

How to Calculate Leverage Coefficient?

Debt-to-Equity Ratio is a common indicator.

A company with 10 million yuan debt and 5 million yuan equity has a ratio of 2.0.

This means each 1 yuan of equity supports 2 yuan of debt. The higher the ratio, the greater the risk, but also the higher the potential ceiling for returns.

Ratios above 2.0 start to be dangerous.

Practical Scenario 1: A Crypto Newbie’s First Leverage Trade

• Account balance: $2,000
• Leverage chosen: 20x
• Actual position size: $40,000 (buying Ethereum)
• Price rises 3%: profit of $1,200 ✓
• Price drops 5%: loss of $2,000, full liquidation ✗

Harsh truth: A 5% drop can wipe out your principal. That’s why leverage is called a double-edged sword—appears to be a profit machine but is actually a magnifying glass for risk.

Practical Scenario 2: An Experienced Trader’s Risk Management

• Account balance: $50,000
• Leverage: 5x (conservative)
• Per trade margin: $5,000 × 5 = $25,000
• Open 5 trades, diversifying across different coins
• Set a 3% stop-loss on each
• Expected annual return: 20-30%

The key difference: conservative leverage + scientific risk management = potential for steady profits. Aggressive leverage = gambler mentality.

Common Pitfalls of Leverage

Liquidation Risk (Most Deadly)

When losses reach a certain percentage of margin, the exchange will close your position, even if you want to hold on.

With 10x leverage, a 10% drop in price liquidates you. No negotiation.

Funding Costs (Often Overlooked)

Holding leveraged positions long-term incurs interest. It’s like burning money daily.

Psychological Collapse

Watching numbers bounce wildly on your screen between your principal and liquidation point. Most traders make wrong decisions under stress.

Market Black Swans (Unpredictable)

Sudden news, policy changes, exchange failures—anything can instantly wipe out your position.

When Is It Suitable to Use Leverage? When Not?

Suitable Scenarios:

• Clear upward trend (e.g., BTC supported by Federal Reserve optimism)
• You have at least 3+ years of trading experience
• Sufficient funds (losses won’t affect your life)
• Time to monitor markets actively

Avoid When:

• Coin is at a high level, on the verge of a black swan event
• You are a beginner (don’t pay tuition with leverage)
• Funds are tight (don’t risk money you can’t afford to lose)
• Market is highly uncertain (policy vacuum, extreme conditions)

How Beginners Should Approach

Step 1: Practice on demo or small real accounts for 2-3 months, using 3-5x leverage.

Step 2: Establish strict stop-loss rules—set a price point where you close positions unconditionally.

Step 3: Start small—test with $500, and after earning $200, add more.

Step 4: Record every trade—review what worked and what didn’t.

Step 5: Only then consider using more than 10x leverage.

Leverage vs. Leverage (Lefevre’s) Issue

In Russian, it’s usually written as “левередж,” closer to the English pronunciation. “леверидж” is also seen but less professional.

Official documents and professional media use “левередж.”

Choose whichever, but consistency is key.

Leverage Is Not Short Selling

Short Selling: Betting on the coin’s price falling.

Leverage: Amplifies any position—long or short.

Don’t confuse the two.

Can You Completely Avoid the Risks of Leverage?

Answer: No.

But you can significantly reduce them by:

• Using 3-5x leverage instead of 100x
• Setting and strictly executing stop-loss orders
• Only leveraging mainstream coins (liquidity is better, manipulation less likely)
• Diversifying trades, not putting all eggs in one basket
• Regularly reviewing and reducing risk when necessary

Conclusion

Leverage is neither heaven nor hell.

It’s a double-edged sword—beginners use it to self-destruct, veterans use it to profit.

The difference depends on how deep your market understanding is, how strict your risk management is, and how strong your psychological resilience is.

Everyone is advised to start conservatively with 3-5x leverage, gradually gaining experience. Once consistently profitable, consider more aggressive strategies.

Remember: Survival first, profit second. Keep your account alive, and you’ll have the chance to turn things around.