Leverage
Leverage lets you hold a position bigger than the money you put in. Every price move is then multiplied against your deposit — in both directions.
Photo: “Seesaw” by nzgabriel, CC BY 2.0, via Flickr (edited: cropped and resized).
The CFTC defines leverage as “the ability to control large dollar amounts of a commodity or security with a comparatively small amount of capital” [1]. Typically you fund only a fraction of the position through a margin account [2]. The CFTC warns that leverage “amplifies the underlying risk” [2].
Key points
- 1Leverage is the ratio of position size to the margin you post: $1,000 controlling $10,000 is 10x.
- 2Gains and losses are calculated on the full position, so they are multiplied relative to your deposit.
- 3Venues force-close (liquidate) leveraged positions when your remaining margin falls below a required minimum.
How does leverage work?#
With leverage you pay only part of a position’s value up front. The CFTC explains that participants “only fund futures contracts at a fraction of the underlying commodity price” through a margin account, which creates leverage [2]. Investor.gov describes a margin account as one in which the broker lends cash using the account as collateral, increasing purchasing power “but also” exposing investors to “the potential for larger losses” [3].
On crypto derivatives venues the ratio is usually chosen per position. Hyperliquid, as one example, lets users set leverage from 1 up to an asset’s maximum, and calculates the margin needed to open a position as position size × mark price ÷ leverage [4]. Maximum leverage on that venue ranges from 3x to 40x depending on the asset [5].
| Step | Value |
|---|---|
| 1x: position $1,000, loss on a 5% drop | $50 (5% of your money) |
| 2x: position $2,000, loss | $100 (10%) |
| 5x: position $5,000, loss | $250 (25%) |
| 10x: position $10,000, loss | $500 (50%) |
| 20x: position $20,000, loss | $1,000 (100%) |
| Price move that wipes out the margin at 10x / 20x | 10% / 5% |
In practice the venue closes the position earlier, when equity falls below its maintenance margin. See open interest and liquidations for the exact calculation.
Is leverage the same as borrowing?#
Often, but not always. In a margin account you borrow cash from a broker [3]. In futures and perpetuals, nothing is lent to you directly. You post margin, which the CFTC says “is not partial payment on a purchase”; it is money or collateral on deposit, also called a performance bond [1]. Gains and losses are then calculated on the contract’s full size. The effect on your deposit is the same — see spot vs derivatives.
Which words are related?#
- Liquidity — thin markets make leveraged exits more expensive.
- Funding rate — the recurring cost of holding a leveraged perpetual position.
- Perpetual futures — a common way leverage is traded in crypto.
Frequently asked questions#
Can I lose more than I deposit with leverage?
Yes. The CFTC warns that when markets go against leveraged positions, customers may have to add money or close out and “may lose more than their initial investments” [2].
What does 10x leverage mean?
Your position is ten times the margin you post. A 1% price move changes your margin by about 10%, and a 10% move against you is enough to wipe it out before fees.
Is low leverage safe?
It is less risky than high leverage, not safe. Even 2x halves the price move needed to lose your whole margin, and crypto prices can move sharply in a short time [6].
Sources#
Grade A = primary source (regulator, protocol specification, client code, original author). Grade B = expert secondary source used for explanation only.
- AU.S. Commodity Futures Trading Commission. Futures Glossary: A Guide to the Language of the Futures Industry, 2026.
- AU.S. Commodity Futures Trading Commission. Customer Advisory: Understand the Risks of Virtual Currency Trading, 2026.
- AInvestor.gov, U.S. Securities and Exchange Commission. Margin Account (glossary), 2026.
- AHyperliquid Docs. Margining, 2026. Used as one example of how a venue documents leverage; other venues differ.
- AHyperliquid Docs. Liquidations, 2026.
- AEuropean Supervisory Authorities (EBA, ESMA, EIOPA). EU financial regulators warn consumers on the risks of crypto-assets, 2022.