How Does High Leverage Amplify Both Profits and Losses?

Leverage allows a trader to control a large contract value with a small amount of capital. For example, 10x leverage means a $1,000 deposit controls a $10,000 position.

A small percentage move in the underlying asset is applied to the full $10,000. This magnifies profits if the market moves favorably, but it equally magnifies losses, making the position much more susceptible to liquidation.