Leverage: what it really changes

Summary

Leverage lets a small margin control a large position. At 10x, a 1% price move changes your margin by about 10%, in both directions. Leverage does not make an idea better; it only makes every result bigger, including losses and fees. The same price move that is a small dip without leverage can wipe out a position at high leverage.

Key points

• At 10x, a 1% price move is about 10% of your margin.
• Leverage enlarges losses exactly as much as gains.
• It changes the size of results, not the quality of the idea.

Check yourself

At 10x leverage, roughly what does a 2% price move against you do to your margin?

Practice