How Does ‘Leverage’ Increase the Risk of Liquidation?
Leverage allows a trader to control a large position with a small amount of capital (margin). While it magnifies potential profits, it equally magnifies potential losses.
A highly leveraged position will breach the maintenance margin requirement with a much smaller adverse price movement than a low-leverage position, making liquidation more frequent and sudden.
Glossar
Adverse Price Movement
Exposure ⎊ Adverse price movement within cryptocurrency derivatives represents a deviation from anticipated directional forecasts, impacting portfolio valuations and risk parameters.
Leverage
Amplification ⎊ Leverage, within cryptocurrency, options, and derivatives, represents the utilization of borrowed capital to increase the potential return of an investment, fundamentally altering risk-reward profiles.
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.
Crypto Futures
Product ⎊ Crypto futures are standardized, exchange-traded contracts obligating the holder to buy or sell a specific quantity of a cryptocurrency at a predetermined price on a specified future date.