apps love big numbers: 20x, 50x, even 100x , one tap away. The idea is simple and tempting: a small amount of money, a big position, a big profit. What the button does not show is how small a price move it takes to lose everything you put in. This lesson explains , leverage and with a worked bitcoin example, so you can see the numbers before an app shows them to you the hard way.
Before we start: what do you think?
You open a 10x long bitcoin position with $1,000 of margin. Roughly how far must the price fall before the $1,000 is gone?
✗ That is true only without leverage; with 10x, a much smaller fall is enough.
✗ A 50% fall would cost five times your margin on a 10x position.
✓ Right: your position is $10,000, so a 10% fall costs $1,000, and fees and safety margins make it happen sooner.
✗ A 1% fall costs $100 at 10x; you need 100x to lose everything on a 1% move.
Futures and perpetuals in plain words
When you buy a coin, you own it. When you trade futures, you own nothing. You hold a contract that pays you, or charges you, the change in the coin's price.
Most offer a special kind called perpetual futures, often shortened to "". Normal futures end on a set date. Perpetuals have no end date, so you can hold them as long as your account can carry them.
Futures let you do two things you cannot do by simply buying:
- Go short: make money if the price falls, and lose money if it rises.
- Use leverage: hold a position much bigger than the money you put in.
The money you put in is the margin. With 10x leverage, $1,000 of holds a $10,000 position. Your profit and loss come from the full $10,000, not from the $1,000.
Quick check
With 10x leverage and $1,000 of margin, how big is your position, and where do profit and loss come from?
Liquidation: the platform closes you out
With a , a losing trade is closed by a when your account runs low. (See Leverage in plain words, which uses gold.) Crypto futures have the same idea under a harsher name: liquidation.
The platform needs your margin to cover your losses. When the losses eat almost all of it, the platform closes the position by force, at the liquidation price. It does not ask, it does not wait for the price to come back, and it often charges a fee. On many platforms, what is left of the margin at that point goes to fees, so you should expect to lose all of it.
The quick rule: with leverage L, a move of about 1 ÷ L against you wipes out your margin. At 10x that is 10%. At 100x it is 1%.
| Leverage | Position with $1,000 margin | Fall that wipes out $1,000 | Price, if you entered at $50,000 |
|---|---|---|---|
| 2x | $2,000 | 50% | $25,000 |
| 5x | $5,000 | 20% | $40,000 |
| 10x | $10,000 | 10% | $45,000 |
| 20x | $20,000 | 5% | $47,500 |
| 50x | $50,000 | 2% | $49,000 |
| 100x | $100,000 | 1% | $49,500 |
These prices ignore fees and safety margins. Real liquidation comes a little earlier, as the example below shows. And as Why crypto swings explains, crypto can move 5% or more in a few hours.
Quick check
At 20x leverage, roughly what price move against you wipes out your margin?
Worked example: A 10x long on bitcoin, step by step
To keep the maths simple, imagine bitcoin costs $50,000. (The real price is different and changes all the time. Only the method matters.)
You put $1,000 of margin into one position and choose 10x leverage. You go long.
- Position size: $1,000 × 10 = $10,000
- Bitcoin held in the contract: $10,000 ÷ $50,000 = 0.2 BTC
- Every $1,000 the price moves changes your result by 0.2 × $1,000 = $200
Platforms also require a small safety amount called maintenance margin. Imagine it is 0.5% of the position: 0.5% × $10,000 = $50. When your margin falls to $50, you are liquidated.
- Loss that triggers liquidation: $1,000 − $50 = $950
- Price fall needed: $950 ÷ 0.2 BTC = $4,750
- Liquidation price: $50,000 − $4,750 = $45,250, a fall of 9.5%
At $45,250 the position is closed. The remaining $50 goes to fees. Your $1,000 is gone.
Now compare: if you had bought 0.2 BTC without leverage, it would have cost $10,000. At $45,250 it would be worth $9,050. That is $950 down on paper, but you would still own the coins and could wait. With leverage, waiting is not an option.
Funding: the cost of holding a perpetual
Perpetuals have one more cost that many beginners miss: the funding rate. It is a small payment between the people who are long and the people who are short. It keeps the perpetual's price close to the coin's real price.
When most traders are long, funding is usually positive and longs pay shorts. When most are short, shorts pay longs. Payments happen at fixed times, often every 8 hours, but the schedule and the rate differ by platform. Check yours.
Using the example position of $10,000:
- At 0.01% per 8 hours, you pay $1 each time, $3 per day, and $90 in 30 days. That is 9% of your $1,000 margin.
- At 0.05% per 8 hours, you pay $5 each time, $15 per day, and $450 in 30 days. That is 45% of your margin, even if the price does not move.
Funding is charged on the full position, not on your margin. The higher your leverage, the bigger the cost compared to your own money.
Quick check
Is funding charged on your margin or on the full position?
What the rules say
In the EU, regulators limit leverage on crypto for to 2:1. Platforms outside these rules often offer 50x, 100x or more. A higher maximum is not a better deal. It only means you are allowed to lose your money faster.
If you are new, the safest way to start is simple: learn how liquidation works on paper or on a first, and do not use leverage on crypto with money you cannot lose.
Key takeaways
- Futures pay the price change. Perpetuals are futures with no end date.
- With leverage L, a move of about 1 ÷ L against you wipes out your margin. At 10x that is about 10%, at 100x about 1%.
- Liquidation closes your position by force and usually takes the whole margin.
- Funding is paid on the full position, often every 8 hours, and it adds up.
- In the EU, retail leverage on crypto CFDs is limited to 2:1. Higher limits elsewhere only mean bigger risk.
Try this
Take the table in this lesson and add one row for the leverage an app or advert has offered you. Write the fall that would wipe out your margin, and the liquidation price from a $50,000 entry. Then look at a bitcoin chart and count how many days in the last month the price moved that much within one day.