Leverage, a double-edged sword
Leverage is the ability to trade with an amount greater than your capital. With 10x leverage, a transaction worth 10 million won is possible with 1 million won. Your profit will be 10 times greater and your loss will be 10 times greater.
There are many stories of people who made huge profits through futures trading, but in reality, most beginners in futures trading suffer losses due to leverage.
This article is not about giving up leverage. It's about learning how to use leverage correctly.
How leverage works
Basic example (10x leverage)
My Capital: $1,000
Leverage: 10x
Actual Position Size: $10,000
When price drops by 1%:
Position loss: $100 (1% of position)
My Capital Loss: $100 / $1,000 = 10%
When price drops by 10%:
Position loss: $1,000
→ Loss of my entire capital = liquidation
At 10x leverage, a 10% unfavorable move will result in liquidation.
Liquidation distance by leverage
| Leverage | Price fluctuation range until liquidation | Coin situation |
|---|---|---|
| 2x | 50% | Open safety |
| 3x | 33% | very safe |
| 5 times | 20% | safety |
| 10 times | 10% | Caution |
| 20 times | 5% | danger |
| 50 times | 2% | very dangerous |
| 100 times | 1% | Extremely dangerous |
It is common for Bitcoin to move 5-10% per day. You can see how difficult it is to last a day with leverage of more than 20x.
5 key principles to prevent liquidation
Principle 1: Leverage × Position Size = Actual Exposure Risk
Myth: “If you spend $100 with 50x leverage, you only get $100.”
Reality: $100 × 50x = $5,000 position
If you move just 2% of $5,000, you lose $100 (total loss).
Principle 2: One-time transaction risk is within 1-2% of the account
Account $5,000
Maximum one-time loss allowed: $50~$100 (1~2%)
After setting stop loss:
Leverage 10x, stop loss 1% → loss 10% = $500 (❌ too large)
Leverage 3x, stop loss 3% → loss 9% = $450 (❌)
Leverage 3x, stop loss 1% → loss 3% = $150 (△)
Leverage 3x, stop loss 0.7% → loss 2.1% = $105 (✅)
Principle 3: Set stop loss first and then decide leverage
Many beginners make the mistake of setting leverage first. Correct order:
1. Determination of entry price
2. Stop loss decision (below/above support/resistance line)
3. Calculate stop loss-entry distance
4. Reverse the position size, which would result in an account loss of 1-2% at that distance.
5. Choose the right leverage for your position size
Principle 4: Reduce leverage during losing streak
3 consecutive losses → 50% leverage reduction
5 consecutive losses → Trading halted on the day
Revenge trading kills your account.
Principle 5: Isolated Margin vs. Cross Margin
| Isolated Margin | Cross Margin (Cross) | |
|---|---|---|
| Liquidation loss | Only the position margin | All Accounts |
| Safety | High | low |
| Recommended for | Both beginner and intermediate level | Advanced Hedging |
Be sure to use isolated margin. If you are liquidated on cross margin, you will lose your entire account.
Appropriate Leverage Guide
| Trader Level | Recommended Leverage | Reason |
|---|---|---|
| Beginner | 1~3 times | Account survival even if you make a mistake |
| Beginner | 3 to 5 times | After some learning |
| Intermediate | 5 to 10 times | After risk management skills |
| Advanced | 10 to 20 times | Only under strict principles |
| expert | 20x+ | Only in exceptional circumstances |
Position size calculation formula
Position size = (Account × Risk%) / Stop Loss%
Example:
Account: $3,000
Risk: 1.5% = $45
Stop Loss Distance: 2%
Position size = $45 / 2% = $2,250
Leverage calculation:
My margin: 75% of $3,000 = $2,250 → less than 1x leverage
More efficient: $300 margin × 7.5x leverage = $2,250 position
Calculate right away with the Position Size Calculator on the site.
Related guides
- Liquidation price calculator →
- Position size calculator →
- Understanding funding fees →
- Scalping Risk Management →