What Is ‘Leverage’ in the Context of Perpetual Contract Trading and What Is Its Primary Risk?

Leverage allows a trader to open a position much larger than the actual capital (margin) they deposit. For example, 10x leverage means a $1,000 margin can control a $10,000 position.

The primary risk is 'liquidation,' where the position is automatically closed by the exchange if the market moves against the trader to the point where the margin is depleted. High leverage amplifies both potential gains and losses, making it a double-edged sword for risk management.