Lesson 02 · 6 min
Leverage is a multiplier, not free money
It does not add cash. It makes the same price move count for more of the cash you already posted.
Teaching chart · not a live market
Long bitcoin, 5× isolated
Last 124 · in profit
Green candles moved up. Red candles moved down. The blue line is where this long started. The dashed red line is where 5× isolated margin is gone.
The short green bar is your money. Leverage only lengthens the bet.
Say you have $100. Buy $100 of a coin and a 10% rise makes about $10. That is 1×. You used your own money and no one else's.
At 5× the desk lets that same $100 control $500. A 10% rise makes about $50. A 10% drop leaves you about $50. A 20% drop can erase the $100. The extra $400 was exposure, not a gift deposited in your account.
Made-up prices. Nothing is sent to an exchange.
+$50.00
Profit or loss on this move
$100 at 5× controls $500
Cash left in the margin after this move: $150.00. A move of about +20.0% against a long wipes isolated margin at this leverage, before fees.
- Position size = margin × leverage. $100 at 10× is a $1,000 position.
- Profit and loss are figured on the position, then compared with the small pile of margin. That is why the percent on your account looks huge.
- The move that wipes isolated margin is about 100 ÷ leverage, in percent. 10× is about a 10% adverse move. 2× is about 50%. Fees pull that line a little closer.
In one sentence. Leverage is the position divided by the cash behind it. Turn the cash into the decision, not the slider.
You post $100 isolated at 10×. The price moves 10% against you. What happens, ignoring fees?