What leverage in crypto is and how it really works
Leverage is the first thing you see when you open the futures tab on any exchange, and the thing that empties the most accounts. It isn’t free money: it’s a multiplier. It multiplies what you make and, just as strongly, what you lose. This is how it works, with numbers and no beating about the bush.
By Bárbara Ruiz·Updated ·5 min read
Leverage in one sentence
Using leverage means trading a position larger than the money you put up as collateral. If you put in 100 USDT and choose x10, you open a 1,000 USDT position. Those 100 USDT are the margin: what the exchange holds as collateral and what you can lose.
The difference, the other 900 USDT, is neither a gift nor a loan you can walk away with: it only exists while the position is open. That’s why leverage is used in derivatives, above all in perpetual futures, and not when buying on the spot market.
What you make and what you lose, in numbers
Put 100 USDT of margin at x10 into a 1,000 USDT long position (you’re betting the price will rise). Look at what happens with different price moves:
| Price move | Position result | On your 100 USDT margin |
|---|---|---|
| +5% | +50 USDT | +50% |
| +1% | +10 USDT | +10% |
| −1% | −10 USDT | −10% |
| −5% | −50 USDT | −50% |
| approx. −9.5% | Liquidation | You lose the margin |
The maths is always the same: result = position size × price move. Leverage only decides how much margin you put up for that size. That’s why an ordinary day’s move in crypto, which can be 5% or more, leaves you with half your margin at x10 and liquidates you at x20.
Why you get liquidated before losing 100%
When losses eat up almost all your margin, the exchange closes the position for you: that’s liquidation. It doesn’t wait for you to lose 100%, because it needs a buffer to close the position without losing money itself. That buffer is the maintenance margin, a small percentage of the position that varies with the exchange and the size.
A rough rule, in isolated margin and leaving fees aside: the distance to liquidation is a little under 100 divided by the leverage.
| Leverage | Move against you that liquidates you (approx.) |
|---|---|
| x2 | under 50% |
| x5 | under 20% |
| x10 | under 10% |
| x20 | under 5% |
| x50 | under 2% |
| x100 | under 1% |
At x100, a move of less than 1% against you closes your position. In crypto that happens several times a day, sometimes in seconds. The exact calculation, step by step, is in how the liquidation price is calculated, and the liquidation price calculator does it with your own numbers.
Isolated or cross margin
In isolated margin, each position risks only the margin you assign to it; in cross margin, all positions share the balance of your futures account, so liquidation is further away, but it can take the entire account. Almost every exchange lets you choose between the two modes:
- Isolated: each position has its own margin. If you get liquidated, you lose that margin and nothing else.
- Cross: all positions share the balance of your futures account. Liquidation is further away, because the exchange draws on the whole balance to keep the position open, but if it comes you can lose the entire account.
If you’re just starting out, isolated margin is easier to understand: you always know how much you can lose on each trade.
The most common mistake: thinking leverage is the risk
Leverage isn’t what decides how much you lose. That is decided by the position size and where you place the stop loss. A 1,000 USDT position with a stop 2% away loses 20 USDT if the stop is hit, whether you open it at x2 (500 USDT of margin) or at x20 (50 USDT of margin).
What leverage does change is how close liquidation is and how much money you have to leave on the exchange. The real danger appears when high leverage is used without a stop loss or with a position too large for your account. How to calculate that size is explained in how much to risk per trade.
If you open a position without knowing where you’ll close it if it goes wrong, leverage decides for you, and it does so through liquidation.
Fees get multiplied too
Trading fees are charged on the position size, not on your margin. With 100 USDT at x50 you open 5,000 USDT, and every fee is calculated on those 5,000. Opening and closing several times a day with high leverage can eat up a large part of your margin even if the price doesn’t move. The numbers are in maker and taker fees.
Frequently asked questions
What does x10 mean in trading?
That the position is ten times the margin you put in. With 100 USDT of margin at x10 you trade as if you had 1,000 USDT, and a 1% move is 10% of your margin.
Can you lose more money than you put in with leverage?
In isolated margin, you will normally lose at most that position’s margin, because the exchange liquidates it first. In cross margin you can lose the entire balance of your futures account. Check your exchange’s terms.
What leverage is safe?
None is safe on its own. What limits the loss is the position size and the stop loss. Low leverage keeps liquidation further away and gives you room for error, but it is no substitute for a stop.
Do you pay for leverage?
There is no charge for using it, but you pay fees on the full position size and, in perpetual futures, the funding rate for as long as you keep the position open.