What is leverage?

Leverage in futures contracts is the use of borrowed money to increase the potential return of an investment.

In cryptocurrency futures, leverage allows traders to gain a much larger exposure to the market while only committing a small amount of their own capital upfront.

This is achieved by using what’s called ‘margin’—a collateral deposited by the trader to open and maintain positions.

Here’s how it works: If a futures contract offers 10x leverage, for instance, you could control $10,000 worth of Bitcoin with just $1,000 of your own money.

This magnifies both potential gains and potential losses, making it a powerful tool for traders looking to maximize their trading power.

However, it also increases risk significantly because if the market moves against your position, losses can exceed the initial margin quickly.

This is why leverage should be used cautiously, especially in the volatile world of cryptocurrency trading.

It’s essential for traders to manage their risk and have clear strategies in place when using leverage in futures trading. See Leverage Trading Guide and How to Trade Safely.