Leverage is the ratio between a position's notional value and the margin you post for it. It lets you open a large position with little collateral, but profit and loss are calculated on the full notional: a 1% move on a 10× position is a 10% change in your margin. Higher leverage also brings the liquidation price closer to your entry.
Example
With a $2,000 account, you want to risk 1% ($20) on an ETH long with a stop 2% below entry. The position size is $20 ÷ 2% = $1,000 of ETH. You can open it with $1,000 of margin at 1×, $100 at 10× or $50 at 20×. The dollar risk is $20 in every case; only the margin locked up and the distance to liquidation change.
Why it matters
Leverage is a tool for using capital efficiently, not a measure of risk on its own. Risk comes from position size and stop distance. Understanding this is what separates traders who size from their stop from traders who pick a leverage number and hope.
Common mistake
Choosing leverage first and size second, for example always opening the largest position the margin allows at 50×. The position becomes huge relative to the account, a small move liquidates it, and a single trade can cost far more than the 1–2% you meant to risk.
Put it into practice
- Free toolPosition size calculatorSize any futures trade from your account, risk % and stop. See quantity, notional, margin and whether your stop sits before the liquidation price.
- Free toolLiquidation price calculatorEstimate the liquidation price of a long or short perpetual on Binance, Bybit or OKX, in isolated or cross margin, with simplified maintenance margin tiers.
FAQ
- Does higher leverage mean higher risk?
- Only if it leads you to open a bigger position. With the same size and stop, the dollar risk is identical at 5× and at 20×. Higher leverage does move the liquidation price closer, so your stop must stay before it.
- What leverage should a beginner use?
- Size the trade to risk around 1% of the account first, then use a leverage that keeps the liquidation price well beyond your stop. For most setups that is a low leverage, often under 10×.
- Is leverage the same as margin?
- No. Margin is the collateral you post; leverage is the ratio of the position's value to that margin. 10× leverage means the margin is 10% of the notional value.