Leverage
Leverage is trading a position larger than the cash you put up, using borrowed money or margin. It multiplies gains and losses in your own capital by the same factor.
How Leverage is calculated
Leverage = position value / your equity. A 10,000 dollar position with 1,000 dollars of your own money is 10 times leverage, so a 10 percent fall in price removes all of your equity (before any maintenance margin or fees). The liquidation price is where your remaining equity hits the exchange's minimum. On perpetual futures, funding payments add a running cost or income.
How it is read
Higher leverage means a smaller adverse move can close you out. The loss can also exceed your deposit on some products.
Common mistakes
- Choosing leverage by the maximum offered. Pick size from the stop first, then check leverage.
- Forgetting that liquidation happens at the exchange's price and often before a stop would.
- Ignoring that fees and funding are charged on the full position, not on your margin.
What Tickfloor tested
Tickfloor has not published a backtest of a rule built only on Leverage. It describes or manages something rather than giving a signal, so there is no strategy to score. It still shapes how any tested rule should be read.
Lessons that cover it
- Debt, gearing and who gets paid first
- Owning a coin versus a perpetual contract
- Working out your liquidation price before you open
- The full cost of a leveraged crypto trade, and the ‘free yield’ trap
- Borrowed money: leverage, margin and liquidation
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.