In trading, Leverage is like borrowing money to increase your potential profit (or loss) from a trade.
Here's a simple breakdown:
1. What is Leverage?
Leverage allows you to control a larger position in the market with a smaller amount of your own money. For example, with 10x leverage, you can control $1,000 worth of crypto with just $100 of your own funds.
2. How It Works on Binance:
- You deposit a small amount of money (called margin).
- Binance lends you additional funds based on the leverage you choose (e.g., 5x, 10x, 20x, etc.).
- You use this combined amount to open a larger trade.
3. Example:
- You have $100 and use 10x leverage.
- Binance lends you $900, so you can trade with $1,000.
- If the price of the crypto rises by 5%, your profit is $50 (5% of $1,000), which is a 50% return on your $100.
- However, if the price drops by 5%, you lose $50, which is a 50% loss on your $100.
4. Risks:
- Amplified Gains: Leverage can increase your profits.
- Amplified Losses: It can also increase your losses. If the market moves against you, you could lose your entire margin or more.
- Liquidation: If your losses exceed your margin, Binance will automatically close your position (called liquidation) to prevent further losses.
5. Key Tips:
- Use leverage carefully, especially if you're new to trading.
- Start with lower leverage (e.g., 2x or 5x) to minimize risk.
- Always set stop-loss orders to limit potential losses.
It is a powerful tool that can magnify both profits and losses, so it’s important to use it wisely and understand the risks involved.
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