What is Leverage?
Leverage is controlling a position larger than the money you put up, expressed as a ratio, which magnifies both gains and losses on the same price move.
What does Leverage mean in practice?
With 10x leverage, a position worth 10,000 needs only 1,000 of your own money as margin. A 1% price move then changes your equity by 10%. The same arithmetic works against you, and a 10% move the wrong way would erase the margin entirely.
Leverage does not change whether a strategy has an edge. It only scales the consequences, including the chance of being closed out before a trade has time to work. That is why caps on leverage are a risk control and not a performance setting.
A worked example
Illustrative only: 1,000 of margin at 10x controls 10,000. Price falls 10%, the position loses 1,000, and the whole margin is gone.
How to read or test it
Work backwards from the loss you can tolerate rather than forwards from the leverage on offer. Find how far price must move against you before the position is closed out, and compare that with the typical size of a move on your timeframe. If an ordinary swing could trigger liquidation, the leverage is too high for the strategy, whatever its edge. Remember that leverage you do not use costs nothing, and many strategies need very little.
How AKQX handles Leverage
AKQX applies a maximum leverage cap to every strategy and sizes positions with fees in mind. Broker-style margin is modelled in paper trading, and the cap applies there too.
See Risk management tools for the feature page.
A common mistake
Raising leverage to make a small edge pay more, which also raises the chance of ruin.
Educational only. This entry explains a term. It is not investment advice and does not recommend any trade, setting or strategy, and example numbers are illustrative, not results.
Related terms
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