What is Leverage?

Leverage in the world of finance, especially in crypto trading, is a strategy where traders use borrowed funds to increase the potential profits from their investments.

This strategy allows traders to open larger positions with smaller capital, by borrowing money from a broker or trading platform. Although leverage can increase potential profits, the risks involved also increase significantly.

If the market moves against the position taken, the losses incurred can far exceed the initial capital. In margin trading, traders are required to keep a certain amount of money as collateral, and if the value of the investment falls below a certain level, they may face a 'margin call' requiring them to add funds or face liquidation of their positions.

Therefore, the use of leverage requires a deep understanding of the market and effective risk management, especially in the highly volatile crypto market.