Definition
Leverage is a trading concept where a trader uses borrowed funds or margin to open a position that is larger than the trader’s own capital. In crypto markets, leverage is commonly expressed as a multiple, such as 5x or 20x, indicating how many times larger the position size is compared with the margin posted. By increasing exposure relative to capital, leverage magnifies the financial impact of price movements on the trader’s account. This effect applies equally to profits and losses, making leverage a high-risk feature of many trading products.
On centralized exchanges, or CEX platforms, leverage is typically embedded into derivatives such as perpetual futures and other margin products. The amount of leverage available is constrained by the exchange’s risk engine, collateral rules, and parameters such as maintenance margin. Because leveraged positions are sensitive to small price changes, factors like slippage and funding rate can materially affect the realized outcome of a trade. Leverage is therefore a core structural characteristic of many advanced trading instruments rather than a standalone product.
Context and Usage
In practice, leverage defines the ratio between the notional value of a position and the margin that supports it. For example, in a leveraged perpetual futures position, a trader’s initial margin determines how close the position is to liquidation if the market moves against it. Higher leverage reduces the price distance to liquidation, increasing sensitivity to market volatility and order execution quality, including any slippage on entries and exits. The interaction between leverage and funding rate also affects the ongoing cost or income of holding a leveraged perpetual position.
Leverage is central to risk management and position sizing in derivatives-based trading. It shapes how quickly unrealized profits or losses translate into changes in account equity and how protective tools, such as a take-profit order, relate to liquidation thresholds. On CEX platforms that offer leverage, system-level safeguards and margin requirements are designed to contain counterparty and systemic risk arising from highly leveraged positions. As a concept, leverage describes the structural amplification of exposure, not the direction of a trade or its expected outcome.