How Does the Collateral’s Value Fluctuation Affect the Effective Leverage in an Inverse Contract?

In an inverse contract, if the base asset's price rises, the value of the collateral (e.g. BTC) increases.

Since the position size is fixed in USD terms, the collateral increase effectively lowers the actual leverage used. Conversely, if the base asset's price falls, the collateral's value decreases, and the effective leverage increases, bringing the liquidation price closer.