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Leverage Meaning

The use of borrowed capital to increase the potential return (and risk) of an investment. In a "2x leverage" trade, for every $1 of your own money, you borrow $1 from the exchange to buy $2 worth of an asset.

If the price goes up 10%, you make a 20% profit on your original $1. Leverage is a "force multiplier." While it can lead to massive gains, it also leads to "Liquidations." If you are at 10x leverage and the price drops 10%, your entire "margin" (your original $1) is wiped out to pay back the loan.

In the volatile crypto markets, high leverage is often called "gambling" because even a tiny price dip can trigger a cascade of liquidations. Professional traders use leverage carefully for "hedging" or to trade larger volumes with less of their capital "at risk" on an exchange.

However, for retail investors, the allure of "quick riches" through 50x or 100x leverage is the primary cause of sudden and total portfolio loss.

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