Why leverage is dangerous

Leverage magnifies outcomes. The chance of a bigger gain and the chance of a bigger loss come from the same mechanism. Buy an asset outright and the worst case is losing what you spent. With leverage, that ceiling disappears: a violent move through your margin produces a loss larger than your deposit, and you may be asked to cover the shortfall. On that basis alone it is a different animal from a spot purchase.

The other commonly overlooked piece is forced liquidation. Once an unrealised loss reaches a set threshold, the operator closes the position and the loss becomes real. The critical point is that a price returning to its old level afterwards does not help you — if you were liquidated on the way, the loss stands. Being right about direction and surviving the path there are different problems, and leverage makes the second one decisive.

The more leverage, the less price movement it takes to reach that liquidation point. In a market that can travel a long way in a short time, that allowance is consumed quickly. During violent moves, orders may also not fill where you expected, closing you out at a worse level. A plan that says 'I will cut at this price' has to account for the possibility that it does not execute that way.

Check the costs as well. Carrying a position past the day's end typically accrues fees and a financing charge, so the longer you hold, the worse your position gets even with the price standing still. Margin requirements, the treatment of shortfalls and the liquidation trigger all vary by operator. Whether to trade at all is your decision, but without reading those terms first you cannot know what will happen to you.