How leverage works on crypto exchanges
You post margin (collateral) and the exchange lets you open a position much larger than that margin. Perpetual futures are the most common vehicle: on Binance or Bybit, 10x leverage on BTC/USDT means $1,000 USDT of margin lets you open a $10,000 long or short. Profit and loss accrue on the full $10,000 notional, but only your $1,000 is at risk — until a move against you burns through it, at which point the position is liquidated.
Two leverage categories to distinguish:
- Isolated margin — margin is scoped to a single position; a liquidation only loses that position’s collateral.
- Cross margin — all collateral in the account backs all open positions. A single bad trade can drain the whole account but lets winning positions “rescue” losers.
DeFi lending protocols like Aave and Morpho offer a different flavor: you deposit ETH, borrow USDC against it, swap for more ETH, deposit again. Each cycle adds leverage but the loan needs to stay above a liquidation LTV.
Why crypto leverage is different
Equity brokers offer ~2x retail leverage and ~4x intraday. Crypto exchanges offer 10x-100x with near-instant execution and 24/7 markets. Combined with crypto’s native volatility, a 5% adverse move — common in a single hour — wipes out 50x leverage entirely. This is how a single whale liquidation can trigger a cascade: forced selling depresses price further, triggering more liquidations, and so on.
Risks and considerations
Treat leverage as a tool for specific trades, not a default mode. Key discipline points: size the position so a liquidation loss is acceptable, use isolated margin for directional bets, set stop-losses well above the liquidation price, and watch the funding rate on perpetuals — positive funding means longs are paying shorts (often for days in a bull market), and the slow bleed can destroy a “winning” trade by expiry. Most professional desks cap effective leverage well below the exchange maximum for a reason.