CoinucationLeverage
Leverage lets a trader control a position larger than their own capital by borrowing, amplifying both gains and losses.
Leverage means trading with borrowed funds. With 10x leverage, a trader with 1,000 dollars controls a 10,000 dollar position. A 5 percent price move in their favor earns 500 dollars, a 50 percent return on their capital. The same move against them loses 500 dollars, half of what they put in. Crypto exchanges commonly offer leverage from 2x to 100x or more on perpetual futures.
The borrowed portion must be protected, so the exchange sets a liquidation price. If the market moves far enough against the position, the exchange closes it automatically and the trader's collateral is used to cover the loss. At 10x leverage a roughly 10 percent adverse move wipes out the position; at 50x it takes only about 2 percent.
Because crypto prices routinely move several percent in an hour, high leverage positions are liquidated constantly. Data sites report billions of dollars of liquidations on volatile days. Leverage is a tool for experienced traders with strict risk controls and is a frequent cause of total loss for everyone else.