Understanding leverage and liquidation

Key takeaways

Position size = margin × leverage; P&L is calculated on the full position size.
A position is liquidated when the loss equals its margin — after a move of about 100% ÷ leverage against you.
Fees are charged on the position size on open and on close, so they grow with leverage too.
Choose leverage from the distance to your stop loss, not from the profit you hope for.

Leverage is the single feature that makes trading on TRADE818 different from simply buying an asset. It lets you open a position that is larger than the money you put in, so a small price move produces a bigger result — in both directions. Before you use it, it is worth understanding exactly how the numbers work, because every limit on the platform follows directly from them.

Margin, leverage and position size

When you open a trade you choose two things: the amount you put in and the leverage. The amount you put in is your margin. It is set aside from your balance for as long as the position is open. The position size is your margin multiplied by the leverage, and that is the amount your profit and loss is calculated on.

Three ways to open a $10,000 position

$10,000 margin at 1×Position $10,000

$1,000 margin at 10×Position $10,000

$500 margin at 20×Position $10,000

All three positions gain or lose exactly the same number of dollars when the price moves. What changes is how much of your own money is at stake and how close the liquidation price is.

The P&L formula

Profit and loss = position size × price change in %. For a long position the price change counts as it is; for a short it counts with the opposite sign. Your return on margin (ROE) is that P&L divided by your margin — it is the number shown next to every open position.

Example: $500 at 20× long on BTC

Margin$500

Position size$10,000

Price +1%+$100 P&L · +20% ROE

Price +3%+$300 P&L · +60% ROE

Price −1%−$100 P&L · −20% ROE

Price −3%−$300 P&L · −60% ROE

Notice the symmetry: leverage multiplies a 1% move into a 20% change of your margin whichever way the market goes. There is no setting that magnifies only profits.

What liquidation means

Your loss on a position can never be larger than its margin. When the price moves against you far enough that the loss equals the whole margin, the position is liquidated: it closes automatically, the margin is used up and nothing else is taken from your balance. With leverage L, liquidation happens after a price move of about 100% ÷ L against you.

2× — about 50% against you
5× — about 20% against you
10× — about 10% against you
20× — about 5% against you
50× — about 2% against you
100× — about 1% against you

At 100× a one-percent move — a completely normal minute for many crypto pairs — is enough to lose the entire margin. That is why the liquidation price is shown in the order ticket before you trade, next to every open position, and in the take-profit / stop-loss window.

Liquidation is checked on the server around the clock, even when you are offline. For stocks, indices and other markets that close, it is checked again when the market reopens — prices can gap past your level overnight.

Fees are part of the math

A trading fee is charged on the position size when you open and again when you close. On a $10,000 position at the base rate of 0.06%, that is $6 to open and about $6 to close. Because the fee is based on position size, a higher leverage on the same margin also means a higher fee — something many beginners overlook.

Breaking even on $500 margin

At 10× ($5,000 position)≈ $6 fees · needs ≈ +0.12%

At 20× ($10,000 position)≈ $12 fees · needs ≈ +0.12%

At 100× ($50,000 position)≈ $60 fees · needs ≈ +0.12%

The break-even move in percent stays the same, but in dollars the fees grow with the position — and at 100× they eat 12% of your margin before the price has moved at all.

How to choose leverage

1Decide where your idea is wrong — that is your stop loss, for example 2% below the entry.
2Decide how much of your balance you are willing to lose if the stop is hit, for example $20.
3Position size = amount you are willing to lose ÷ stop distance: $20 ÷ 2% = $1,000.
4Pick a margin and leverage that give that size, and check that the liquidation price is well beyond your stop.

Following this order — stop first, size second, leverage last — keeps leverage a tool for using your balance efficiently instead of a way to take risks you didn't plan.

Common mistakes

Using the maximum leverage by default. High leverage leaves no room for normal price noise.
Opening a position without a stop loss and letting liquidation be the stop.
Adding margin to a losing position to push liquidation away instead of accepting a small loss.
Ignoring fees on very short trades with high leverage.

FAQ

Can I lose more than my margin?

No. The loss on a position is capped at its margin; the rest of your balance is not touched by that position.

Does leverage change my P&L in percent of price?

No. It changes the position size. A 1% move is 1% of the position whatever the leverage — leverage only changes how large that is compared with your margin.

Where do I see the liquidation price?

In the order ticket before you open, next to each open position, and in the take-profit / stop-loss window.

Leveraged trading is high risk. You can lose all the money you put into a position, and repeated losses can wipe out your balance. Only trade with money you can afford to lose.

Put it into practice

Open the terminal and try it on any market.

Open terminal

This article is for educational purposes and is not investment advice. Trading with leverage carries a high level of risk and you can lose all invested capital.