Let’s get to know leverage, the tool that plays a vital role in the cryptocurrency world. It is like a loan that allows you to boost your position to levels higher than your wallet balance by borrowing collateral funds, making it possible to increase your potential returns. However, it also comes with a higher risk of loss.
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In futures contracts, you can open both long and short positions using leverage, which allows you to profit from short-term price movements regardless of a bull or bear market. This type of trading is best suited for those with an investment strategy that takes advantage of market volatility, and price movements in the future.
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For example, if you would like to invest $1,000 in a cryptocurrency with only $100 available in your wallet, you can use a leverage ratio of 1:10 (10x) to make it happen, as your position is multiplied tenfold.
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On the other hand, leverage also comes with higher risks. The higher the leverage ratio, the greater the risk of losing your investment money, especially if you haven’t set your stop-loss positions. If the market goes in the opposite direction from your position, your total futures portfolio may get liquidated! You should choose the best trading methods for your investment strategy and risk tolerance. The choice is yours! Always do your research before investing!
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Source
https://www.investopedia.com/terms/l/leverage.asp
https://www.investopedia.com/terms/b/buyingpower.asp