What is trading cryptocurrency with leverage?

Leverage works through a cryptocurrency exchange or brokerage granting you the right to trade positions that are multiples of your trading capital.

You might for example have $1,000 of trading capital.

If you executed a regular (non leveraged) trade that realised a 10% gain you would make $100 (1,000*0.10) and end up with $1,100.

If the trade realised a 10% loss you would lose $100 and end up with $900 or 90%.

With x10 leverage you could execute the same trade, but your $1,000 would act as what is known as a Margin, and you’d effectively be trading with $10,000.

Now the 10% gain would translate into a $1,000 profit (10,000*0.10).

However, the 10% loss would result in you losing your entire trading capital – 100% loss.

Here’s that example demonstrated in a table.

Because of the way that leverage magnifies profit and loss, a leveraged trade will have a point at which unless you add more capital, your position will be automatically closed. This is also known as a Margin Call. 

Leveraged trading is popular in markets with low volatility, like foreign exchange markets, because the fluctuations are fractions of a percentage. Despite the fact that cryptocurrency is inherently volatile – by comparison – leverage is available on some exchanges up to 100x, though multiples start at x2 or x3 and move upwards from there.