How Does the Concept of “Leverage” Apply to Futures Trading?
Leverage in futures trading allows a trader to control a large contract value with a relatively small amount of capital, known as margin. For example, 10x leverage means a $1,000 margin can control a $10,000 contract.
While this magnifies potential profits, it also significantly amplifies potential losses, making futures a high-risk instrument.
Glossar
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.
Margin
Collateral ⎊ Margin serves as the collateral required to open and maintain a leveraged position in derivatives trading.
Margin Requirements
Collateral ⎊ Margin requirements represent the equity a trader must deposit with a broker or exchange as a good faith measure, securing potential losses arising from leveraged positions within cryptocurrency, options, and derivative markets.
Contract Value
Definition ⎊ Contract Value represents the total notional worth of a derivative agreement, calculated by multiplying the contract's size by the current price of the underlying asset.
Regulated Exchanges
Exchange ⎊ Regulated exchanges, within the cryptocurrency, options, and derivatives landscape, represent a critical infrastructure element ensuring market integrity and investor protection.
Futures Trading
Leverage ⎊ Futures trading, within cryptocurrency and broader financial derivatives, represents an agreement to buy or sell an asset at a predetermined price on a specified future date, functioning as a contingent claim whose value is derived from the underlying asset’s price movements.