How Does Leverage Ratio Impact the Risk of Liquidation?

The leverage ratio directly amplifies both potential returns and the risk of liquidation. A higher leverage ratio means a smaller unfavorable price movement is needed to wipe out the initial margin.

For example, a 10x leveraged position will be liquidated with a 10% move against the trader, whereas a 2x position requires a 50% move. Therefore, higher leverage drastically increases the proximity to the liquidation price and makes the position more susceptible to market volatility.