What Is Leverage Trading?

How Leverage Trading Works

Leverage trading allows you to control a position larger than your actual capital by using borrowed funds. You deposit a fraction of the total position value - called margin - and the exchange effectively lends you the rest. The leverage ratio describes how many times your position size exceeds your margin. At 10x leverage, $1,000 of margin controls a $10,000 position. At 50x leverage, that same $1,000 controls $50,000.

The key to understanding leverage is that profits and losses are calculated on the entire position size, not just your margin. If you open a $10,000 long position using $1,000 margin (10x leverage) and the asset price increases by 5%, you earn 5% of $10,000 - that is $500, or a 50% return on your $1,000 margin. However, if the price decreases by 5%, you lose $500, which is 50% of your margin. The amplification works in both directions.

In crypto markets, leverage trading is most commonly done through perpetual futures contracts. These contracts allow traders to open leveraged long or short positions on assets like BTC, ETH, SOL, and hundreds of other tokens. You can see all available leveraged markets on our markets page.

Margin, Maintenance, and Liquidation

Margin is the collateral you deposit to open and maintain a leveraged position. There are two important margin thresholds to understand: initial margin and maintenance margin. Initial margin is the minimum amount required to open a position. Maintenance margin is the minimum amount required to keep the position open. If your account equity falls below the maintenance margin, your position will be liquidated.

For example, with 10x leverage, your initial margin is 10% of the position size, and the maintenance margin might be 5%. As the market moves against you, your effective margin decreases. When it hits the maintenance margin threshold, the liquidation engine closes your position automatically. The higher your leverage, the smaller the price move required to reach liquidation.

Understanding where your liquidation price falls is critical before entering any leveraged trade. A 50x position has a liquidation threshold of roughly 2% from your entry price, while a 5x position can withstand approximately 20%. Use our liquidation calculator to determine your exact liquidation price for any combination of entry price, leverage, and position size.

Leverage Tiers and Position Limits

Most exchanges, including Hyperliquid, implement a tiered leverage system. The maximum leverage available decreases as your position size increases. For example, you might be able to use 50x leverage on a $10,000 BTC position, but only 20x leverage on a $500,000 position, and perhaps 5x on positions over $5 million. This tiered approach protects the market from the outsized impact of very large, highly leveraged positions.

Different assets also have different maximum leverage limits based on their liquidity and volatility. A highly liquid asset like BTC might support up to 50x leverage, while a smaller-cap altcoin might be limited to 5x or 10x. More volatile assets require more margin per unit of exposure because price swings are larger and liquidation risk is higher.

These limits exist for good reason. An overleveraged market is vulnerable to cascading liquidations, where a modest price move triggers a wave of forced closures that push the price further, triggering more liquidations. By limiting maximum leverage on larger positions and volatile assets, exchanges help maintain market stability.

Risk Management for Leveraged Trading

The single most important principle in leveraged trading is that leverage should be used to improve capital efficiency, not to take outsized risks. Many successful traders use moderate leverage (2x-5x) to free up capital for other positions or to maintain a cash reserve, rather than maximizing their position size. The goal is to achieve the same dollar exposure with less capital committed, not to multiply your risk.

Position sizing is your primary risk management tool. Before opening a trade, determine the maximum amount you are willing to lose - most professionals cap this at 1-3% of their total portfolio. Then calculate your position size and leverage to ensure that your stop-loss, if triggered, results in a loss within that limit. You can use our position size calculator to determine the optimal position size for your risk tolerance.

Stop-loss orders are non-negotiable for leveraged trading. A stop-loss automatically closes your position at a predetermined price, preventing catastrophic losses. Always set your stop-loss before entering a trade, and set it well above your liquidation price to account for slippage. Combined with proper position sizing, stop-losses ensure that no single trade can significantly damage your account.

Best Practices for Leverage Traders

Start with low leverage and increase only as you gain experience and develop a proven track record. Many new traders are attracted to high leverage because of the potential for large percentage gains, but the mathematics of ruin work against them. A series of small losses at high leverage can quickly deplete an account, while the same trades at lower leverage would be easily survivable.

Always know your liquidation price before entering a trade. Use the liquidation calculator to understand exactly where your position will be forcibly closed. If the liquidation price is too close to the current price for comfort, reduce your leverage or increase your margin. Never be in a situation where you are surprised by a liquidation.

Avoid adding to losing positions - a practice known as "averaging down." While this can work in spot trading where there is no liquidation risk, adding margin to a losing leveraged position often leads to a larger loss when the market continues moving against you. Instead, accept the loss, close the position, and look for the next opportunity.

Finally, never use leverage with money you cannot afford to lose. Crypto markets are volatile, and even well-planned trades can result in losses due to black swan events, exchange issues, or cascading liquidations. Leverage amplifies everything - including the consequences of unexpected events.