Leverage

Leverage is the use of borrowed capital provided by an exchange to multiply your trading position size, amplifying both your potential profits and your potential losses.

In the perpetual futures market, leverage is the primary tool traders use to turn small price movements into massive portfolio gains—or instant bankruptcies.

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How Leverage Actually Works

When you use 10x leverage, you are telling the exchange: “I have $1,000. Please let me trade as if I have $10,000.”

The exchange agrees, but holds your initial $1,000 as collateral (Initial Margin). You now control a $10,000 position.

The Bull Case (Profit Amplification):

• Bitcoin goes up 10%.
• Your $10,000 position is now worth $11,000.
• You close the trade, give the exchange back their $9,000, and keep the $2,000.
• Your ROI: You made $1,000 profit on a $1,000 deposit. That is a 100% Return on Investment, even though the asset only moved 10%.

The Bear Case (Instant Rekt):

• Bitcoin goes down 10%.
• Your $10,000 position is now worth $9,000.
• The exchange realizes that if Bitcoin drops any further, their $9,000 will be at risk.
• Because you have breached your Maintenance Margin, the exchange instantly triggers a Liquidation. Your $1,000 is wiped out completely.

The Cost of Leverage

Exchanges do not lend you money for free. When you hold a leveraged position on a CLOB (Order Book) exchange like Hyperliquid, you must pay (or receive) the Funding Rate every 8 hours based on your total leveraged position size, not just your margin.

If you are 50x long and the funding rate is highly positive, you will be bleeding your margin at a terrifying rate simply to keep the position open.

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Related Terms

• Maintenance Margin — The threshold where your leverage kills you.
• Funding Rate — The holding cost of leveraged positions.
• Cross vs Isolated Margin — How you allocate collateral for your leveraged trades.