Leverage and liquidation
Leverage does not only multiply the outcome. It converts a temporary move into a permanent loss, and that second effect is the one that empties accounts.
Leverage lets you hold a position larger than your money. Put up 1,000 and control 10,000, and every price move counts on the larger number. That is the whole idea, and it is usually explained as multiplying your profit.
It does multiply the profit. It also does something else, which is rarely stated with the same enthusiasm and matters far more.
Margin: what you actually put up
Your money is not spent, it is pledged. It sits as collateral against the position, and it is what the platform takes if the position goes badly enough. Two thresholds govern it.
Initial margin — the collateral required to open. At 10x, that is a tenth of the position size.
Maintenance margin — the minimum that must remain for the position to stay open. Fall below it and the position is closed, whether you are watching or asleep.
Nobody calls you
There is no margin call, no grace period and no conversation. When the threshold is crossed the engine closes the position automatically, in whatever liquidity exists at that moment.
How far the price can move before that happens
Roughly the inverse of the leverage. At 10x it takes about a ten per cent move against you to wipe the collateral; at 50x, about two per cent. Fees and funding are deducted from the same collateral, so in practice liquidation arrives slightly sooner than the round number suggests.
Put the dashed line next to a typical week in crypto and the picture stops being abstract. A five per cent day is unremarkable. Everything to the left of that line is a position that ordinary weather closes — no crash required, no news, no bad luck beyond the market doing what it does most weeks.
High leverage is not a bold version of low leverage
At 100x you are not taking a large directional view. You are betting that the next one per cent happens in your direction first, and one per cent is noise. The outcome is decided by sequence rather than by anything you assessed.
The part that is not about multiplication
Suppose you are right. The asset does what you expected — eventually. On spot, an interim fall is uncomfortable and irrelevant; you still hold the coins when it recovers.
On leverage, that interim fall closes the position permanently. The recovery happens without you. Your analysis was correct, your money is gone, and those two facts do not contradict each other.
This is the real effect: leverage converts a temporary adverse move into a permanent loss. That is not a multiplier on your view. It is a new way to lose that does not exist when you own the asset.
Isolated and cross margin
Isolated ties a fixed amount of collateral to one position. That position can be liquidated and the rest of your account is untouched. The loss is contained and known in advance.
Cross lets the whole balance support every position. Liquidation comes later, because more collateral stands behind it — and when it comes, it can take everything, because everything was standing behind it.
Cross is often presented as the safer setting because positions survive longer. Surviving longer and losing less are different properties, and only one of them is being described.
What liquidation actually costs
Not simply the collateral. Most venues charge a liquidation fee on top, and the closing trade is a market order into a moving price — so the fill is usually worse than the theoretical liquidation level.
If the fill is bad enough that the loss exceeds your collateral, the shortfall is covered by an insurance fund the venue maintains. When that fund is insufficient during a violent move, some platforms fall back to auto-deleveraging: profitable traders on the opposite side have their positions closed to balance the book. Being right is not always sufficient to stay in the trade.
Reading the number honestly
"10x" sounds like a setting for how confident you feel. It is better read as a statement about distance: the percentage move that ends the position, in either direction, before you have any say in it.
The rest of this section — position size and costs — deals with the two variables you fully control. Leverage is where beginners look for an edge, and it is the one place where the mechanics are actively working against being early, being patient, or being right slowly.
Sources
Where the factual claims on this page come from. Each was read on the date shown.