What is leverage?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
Leverage is the ratio between your collateral and the size of the position it supports. Raising it scales both gains and losses by the same factor and shrinks the price move needed to trigger liquidation. The available multiples differ by exchange and by local regulation.
Key points
- The ratio of position size to posted collateral
- Higher multiples scale gains and losses alike
- The higher the multiple, the closer liquidation sits
- Available multiples vary by exchange and regulation
Definition
The multiple by which a position's notional size exceeds the collateral backing it. The higher the multiple, the larger each price move is relative to that collateral.
With 100,000 yen of collateral, 2x means a 200,000 yen position and 5x means 500,000 yen. A 1% move in the underlying is 2,000 yen in the first case and 5,000 in the second. It is a plain proportional relationship: the multiple scales the swing relative to your collateral.
What matters most is that the buffer before liquidation shrinks in inverse proportion. If you treat losing the entire deposit as the boundary, 2x reaches it after a 50% adverse move, 10x after 10% and 20x after 5%. In practice maintenance thresholds close the position earlier than that.
Leverage amplifies outcomes; it does not improve them. Fees and funding charges also scale with position size, so a higher multiple means heavier fixed costs as well. Each exchange sets its own ceiling, and regulators sometimes force those ceilings down.
Watch out for
- · At high multiples, losses can exceed the collateral and leave you owing the shortfall
- · Once liquidation executes the assets are gone, and a price recovery does not restore the position
- · Raising the multiple raises fees and funding charges in step