What Is the Maximum Risk a Trader Takes When Using Leverage?

The maximum risk a trader takes when using leverage in a standard perpetual futures contract is the loss of their entire margin collateral. While leverage magnifies potential losses, the liquidation mechanism is designed to prevent the account balance from becoming negative.

In rare, extremely volatile events, a trader might face a small negative balance, which is typically covered by the exchange's insurance fund.

What Mechanism Is Typically Used by an Exchange to Handle Negative Equity Balances Resulting from a Stablecoin Depeg?
How Does the ‘Insurance Fund’ on a Futures Exchange Relate to Liquidations?
How Does the Size of an Insurance Fund Influence the Maximum Leverage Offered by an Exchange?
How Does the Size of the Insurance Fund Affect the Exchange’s Maximum Allowable Leverage?
What Is the Role of an exchange’S’treasury’ Compared to the Insurance Fund?
What Role Does a Clearing House or Insurance Fund Play in Covering Margin Shortfalls?
What Is the Concept of ‘Negative Equity’ in a Margin Account?
How Does the Insurance Fund Protect the Exchange from Bankruptcy?

Glossar