What is leverage?

Leverage is one of the most talked-about features of perps — and one of the most misunderstood. It's a tool that can significantly increase both your potential gains and your potential losses, so it's worth understanding properly before you use it.

The basic idea

Leverage lets you control a larger position than the amount of capital you actually put in. It's expressed as a multiplier,  2×, 5×, 10×, and so on.

Example: If you deposit $100 as margin and use 10× leverage, you're controlling a $1,000 position. A 5% price move in your favour would return $50 on a $100 deposit, a 50% return on your margin.

The flip side

Leverage works both ways. That same 5% move in the wrong direction would cost you $50, half your margin. At higher leverage levels, even small price moves can wipe out a position entirely.

This is called liquidation, when the market moves so far against your position that your margin can no longer support it, and the position is automatically closed. More on that in the liquidation article.

Choosing your leverage

Different markets have different maximum leverage limits. Just because a high leverage option is available doesn't mean you should use it, especially if you're newer to perps trading. Many experienced traders use lower leverage deliberately to give their positions more breathing room.

As a rule of thumb: higher leverage = higher risk. Use it with intention, not habit.