What is margin trading, and how does leverage work?
Margin trading means using borrowed funds to open a larger position than your own money alone would allow. This guide explains what leverage and buying power are, how a margin call and liquidation work, and whether you can lose more than you put in. No experience required.
01 The basics
What is margin trading?
Margin trading is trading with borrowed money to increase the size of your position. Instead of buying an asset with only the cash you have, you put in a portion and borrow the rest, which gives you more buying power.
Buying power is simply how much you can trade with in total. If you add your own funds to borrowed funds, your buying power is larger than your cash balance. Leverage is the multiplier that describes this. Trading with 2x leverage means your buying power is twice your own money; 10x means ten times.
Here is a plain example. Say you have $100.00 and use 10x buying power. You can now open a position worth $1,000.00. You control a much bigger trade than your cash alone would allow, because $900.00 of it is borrowed.
Buying power
The total amount you can trade with, including both your own funds and any borrowed funds.
Leverage
The multiplier on your buying power, written as 2x, 5x, or 10x.
Position
The total value of the trade you have open, which leverage lets you make larger than your cash.
02 How it works
Amplified gains and losses
The core thing to understand about leverage is that it works in both directions, equally.
Take the $100.00 at 10x buying power, controlling a $1,000.00 position. If the asset rises 5%, that position gains $50.00, which is a 50% return on your own $100.00. The multiplier made a small move much bigger.
Now flip it. If the asset falls 5% instead, the position loses $50.00, which is 50% of your money gone from a 5% move. A 10% drop would wipe out your entire $100.00. Without leverage, that same 10% drop would have cost you just $10.00.
That is the trade-off in one sentence: leverage amplifies your gain and your loss by the same factor. The bigger the multiplier, the smaller the price move it takes to hurt you.
03 What to know
Margin calls and liquidation
When a leveraged trade moves against you, two things can happen: a margin call and liquidation.
A margin call is a warning. Because part of your position is borrowed, the platform requires you to keep a minimum amount of your own funds backing the trade. If losses push you below that minimum, you get a margin call: add more funds or reduce the position, or the platform will step in.
Liquidation is what happens if you do not. The platform automatically closes your position to recover the funds it lent you. In fast-moving crypto markets, liquidation can happen very quickly, sometimes within minutes, because prices move around the clock. Many new traders are surprised by how fast it can occur.
Here is the sequence in order.
Open with leverage
You put in your own funds and borrow the rest to open a larger position.
Price moves against you
Losses start eating into the funds backing the trade.
Margin call
The platform warns you to add funds or cut the position.
No action
If you do nothing and losses continue, the trade crosses the liquidation level.
Liquidation
The platform closes the position automatically to recover what it lent.
04 Get started
Margin trading vs buying outright
Before using leverage, it helps to compare it to the simpler alternative: buying an asset outright, also called spot trading.
When you buy outright, you own the asset with your own money. If it falls 50%, you lose 50%, but the position is yours to hold and it cannot be liquidated. Your maximum loss is what you put in, and no more.
With margin, you are borrowing, so the position can be closed against your will and losses are amplified. On many products your loss is capped at your deposit, but some leveraged products can lose more than you put in, so always check the specific rules of the platform you use.
People sometimes ask whether leverage is just gambling. It is not the same thing. Gambling is a fixed-odds bet on an outcome you do not control. Leverage is amplified exposure to an asset you already have a view on, with defined mechanics like margin calls and liquidation levels. That said, high leverage with no risk management can produce gambling-like outcomes, which is why understanding it first matters.
Related articles
FAQ
Can I lose more than I invest with margin trading?
It depends on the product. On many platforms your loss is capped at the funds you deposited, because the position is liquidated before it goes further. Some leveraged products can lose more than your deposit, so always check the specific rules before you trade.
What does 10x leverage mean?
It means your buying power is ten times your own money. With $100.00 and 10x, you can open a $1,000.00 position. A 10% move in your favour doubles your money, and a 10% move against you wipes it out. The multiplier applies to both gains and losses.
What is a margin call?
A margin call is a warning that your losses have pushed the funds backing your position below the required minimum. You then need to add funds or reduce the position. If you do not, the platform will liquidate the trade to recover what it lent you.
Is margin trading the same as gambling?
No. Gambling is a fixed-odds bet on an outcome you do not control. Margin trading is amplified exposure to an asset, with defined mechanics like liquidation levels. High leverage without risk management can still produce large, fast losses, which is why understanding it first is important.
Products and features listed may be subject to change and are not a commitment to deliver any material, code, or functionality. We reserve the right to amend, cancel, or suspend any features or products without prior notice to you.