Leverage is the most popular way to lose money fast in crypto.
It's sold as a superpower: control $10,000 with $1,000! And it is one, right up until the market moves the wrong way by a few percent and the exchange closes your position for you. Then it's a very expensive lesson.
Here's how it actually works, in numbers.
The short version
- Leverage means trading with borrowed money. 10x leverage turns $1,000 into a $10,000 position.
- Gains and losses are multiplied by the same number. A 5% move becomes a 50% gain or a 50% loss of your money.
- Liquidation is the exchange closing your position when your losses eat through your collateral.
- At 10x, a move of just under 10% against you can wipe you out. At 20x, about 5%. Bitcoin moves 5% on about one day in twenty.
- Regulators are blunt about it: the UK banned crypto derivatives for retail customers outright.
How leverage multiplies everything
You put down $1,000 of your own money, called margin or collateral. The exchange lends you the rest. At 10x, you now control a $10,000 position.
If the price rises 5%, the position gains $500. That's 50% on your $1,000. Feels incredible.
If the price falls 5%, the position loses $500. That's 50% of your money gone. Feels like the floor opened.
Liquidation: when the exchange pulls the plug
The exchange doesn't wait for you to lose money you don't have. Once your collateral plus your losses drops below a minimum level, called the maintenance margin, the exchange closes your position automatically. Binance, for example, liquidates when your collateral (initial collateral plus realised and unrealised profit and loss) falls below that maintenance level (Binance liquidation rules).
That's a liquidation. Your position is sold, your margin is gone, and fees can take a bit more.
The maths, at every level
Roughly how far the price can move against you before your margin is wiped out (ignoring fees and maintenance margin, which make it happen even sooner):
| Leverage | Move that wipes out your margin |
|---|---|
| 2x | about 50% |
| 5x | about 20% |
| 10x | about 10% |
| 20x | about 5% |
| 50x | about 2% |
| 100x | about 1% |
Now put that next to reality. Over the past year, Bitcoin had a 5% day about once every three weeks, and Ether about once every week and a half (MYEX volatility guide). At 20x, one ordinary bad day ends the trade. At 100x, a normal Tuesday does.
Why liquidations cause crashes
Liquidations don't just hurt the person liquidated. Forced selling pushes the price down, which liquidates the next layer of leveraged traders, which pushes it down further. Dominoes.
That's exactly what happened in mid-November 2026, when more than $1.3 billion of positions were liquidated in a single day (MYEX weekly note). The cliff is mostly other people's leverage.
What regulators say
- The US Commodity Futures Trading Commission warns that leveraged accounts amplify risk, that traders can be forced to add money or close positions, and that they may lose more than they put in (CFTC).
- The UK's Financial Conduct Authority went further and banned the sale of crypto derivatives to retail consumers from 6 January 2021, citing extreme volatility and the risk of sudden, unexpected losses (FCA).
If you use leverage anyway
- Keep it low. 2x gives you room for a 50% move. 20x gives you room for a sneeze.
- Know your liquidation price before you enter, not after.
- Size the margin so a wipeout won't hurt. Assume it can go to zero, because it can.
- Never add margin to save a losing trade on hope alone. That's how a small loss becomes a big one.
Questions people ask
What is leverage in crypto trading?
Leverage means trading with borrowed money. With 10x leverage, $1,000 of your own collateral controls a $10,000 position, so gains and losses are both multiplied by ten.
What is liquidation in crypto?
Liquidation is when an exchange automatically closes a leveraged position because the trader's collateral, after losses, has fallen below the required maintenance margin. The trader typically loses the margin they put up.
How much does the price need to move to liquidate a 10x position?
Roughly 10% against you, and usually a little less once fees and the maintenance margin are included. At 20x it is about 5%, and at 100x about 1%.
Is leveraged crypto trading legal for retail investors in the UK?
The UK Financial Conduct Authority banned the sale of crypto derivatives to retail consumers from 6 January 2021, citing extreme volatility and the risk of sudden losses.