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Beginner 6 min read

Leverage, margin and liquidation

Leverage lets a small deposit control a large position. It multiplies losses just as fast as gains.

Leverage multiplies both the gain and the loss1×no liquidation (you own the asset or the margin covers it)2×−50% against you = liquidated5×−20% against you = liquidated10×−10% against you = liquidated25×−4% against you = liquidated50×−2% against you = liquidated100×−1% against you = liquidatedRule of thumb: your stop must be hit long before your liquidation price.
Illustration for education. Prices are schematic, not real market data.

What it is

Leverage lets you open a position larger than your deposit. At 10× a 1% price move changes your equity by 10%. Margin is the deposit that backs the position. If price moves against you far enough, the exchange closes the position: liquidation.

Leverage does not change what a good trade is. It changes how much room you have to be wrong. The professional approach is to size by risk (distance to the stop) and treat leverage only as the margin tool that lets you hold that size.

How to use it

  1. Choose position size from your stop distance (see position sizing).
  2. Use only enough leverage so that the liquidation price is far beyond your stop.
  3. Prefer isolated margin so one position cannot drain the whole account.
  4. Never add margin to a losing position to avoid liquidation.
Your stop must always be hit before your liquidation price.

Common mistakes

  • Using 50–100× leverage for a tiny edge.
  • Having the stop beyond the liquidation price, so the exchange stops you first.
  • Averaging down into a leveraged loser.

Practise it in TradeDesk X

LIVE execution in TradeDesk X is opt-in and starts in watch-only mode. Micro is paper-only and sizes every trade in dollars with a hard cap on open trades and a daily loss stop.

Open TradeDesk X Open Micro

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Order types: market, limit, stop and take-profit

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Educational content only. Nothing here is financial advice or a recommendation to buy or sell anything. Trading leveraged products can lose more than you deposit. Practise with paper trading first and never risk money you cannot afford to lose.