What Is Leverage?
Leverage in trading is the use of borrowed funds to increase one’s trading position beyond what would be available from their cash balance alone.
Leverage trading is also known as margin trading.
It enables traders to open a position worth much more than the money they deposit.
Leverage can be used in longing or shorting.
In a long, 2x leverage means that you can make 2x profit when the price moves up 1x
In a short, 1x leverage means that you can make 1x profit when the price moves up 1x
If the price moves too much your deposited money is liquidated
Shorting always involves borrowing
In leveraged markets often longs pay shorts, short pays longs as a zero-sum trading game
Leverage requires collateral. If the leveraged trade goes belly up, the account doing the leveraged trade may be liquidated.
See also