Leverage and liquidation

When we talk about leverage (in crypto), we refer to trading using borrowed money to increase your potential for profits (and losses).

Leverage is shown in ratios such as 1:2 (2x), 1:5 (5x), 1:50 (50x), and up to 100x (on most CEXs).

This is indicative of how much your initial entry is multiplied by. This means that if you have $100, with 2x leverage, you can enter a position of $200. With 5x leverage, you’re entering a $500 position.

You enter these bigger positions by borrowing money against your balance, by leveraging your balance against your position.

The money that you borrow from is called collateral, and before you can start trading using leverage, you need to have collateral in your futures account. This account is usually separated from your spot account so only the money transferred into it might get lost.

Margin trading is when you borrow money against your collateral and use that money to open a position. Margin refers to...