Overview

Leverage multiplies outcomes by lowering the cash needed to open a position but does not reduce risk—risk is controlled by position size and stop placement. These 10 "secrets" will help avoid liquidation traps, fee drains, and cascading losses while trading BTC/ETH, majors, and RWAs on perpetual contracts.

Key idea

Survival > returns. Use leverage to express a view efficiently, not to gamble.

Leverage multiplies losses faster than you think

• Approximate adverse moves to wipe initial margin:
  • 3x → ~−33%
  • 5x → ~−20%
  • 10x → ~−10%
  • 20x → ~−5%
  • 50x → ~−2%
  • 100x → ~−1%
• Action: Keep leverage ≤ 3–10x for directional trades with stops far from liquidation.

Risk is defined by your stop, not leverage

• Position size (units) = Risk $ ÷ Stop distance $ per unit
• Required margin = (Position size × Entry price) ÷ Leverage
• Leverage affects margin posting, not dollar loss when stopped.

Example

• Account $10,000; risk 1% = $100.
• BTC entry $63,000; stop $62,370 (−$630).
• Units = 100 ÷ 630 ≈ 0.1587 BTC; Notional ≈ $10,000.
• At 10x leverage margin ≈ $1,000. Loss if stopped ≈ $100 (1%).

Isolated vs Cross Margin

• Use Isolated margin to contain losses to one position.
• Cross margin backs all positions with full account; riskier for beginners.

Liquidations use Mark/Index price, not Last price

• Stops/liquidations can trigger even if last-trade price doesn't hit your level.
• Display mark/index price on charts and place stops with buffers.

Funding and fees can silently bleed you

• Funding paid on full notional, not margin.
• Example: $10,000 notional, 0.05% funding per 8h = $5 every 8h; 0.5% of $1,000 margin per 8h.
• Use limit maker orders and avoid rich funding costs.

Maintenance Margin and Auto Deleveraging (ADL)

• Liquidation occurs when margin ≤ maintenance margin + fees.
• ADL can close profitable positions if insurance funds are insufficient.
• Larger positions on illiquid assets have higher MMR and ADL risk.
• Know MMR tiers on your exchange; keep liquidation buffers.

Liquidity and slippage matter

• Thin books + high leverage = slippage/stops.
• Avoid trading illiquid assets or low-volume times.
• Size orders carefully using impact cost tools.

Correlated bets create hidden leverage

• E.g., long BTC + ETH + SOL is one big macro bet.
• Track total portfolio delta and sector exposures.

Use bracket orders and reduce-only flags

• Always set stop and take-profit (OCO/bracket).
• Reduce-only prevents accidental position flips.
• Scale out profits: partial take at +1R, move stop to breakeven, trail rest.

Start small and build stats

• Begin with 2–3x leverage and risk 0.5–1.0% per trade.
• Log at least 50–100 trades before increasing size.
• If max drawdown >10%, halve size; >20%, pause and review.

Pre-trade checklist (60 seconds)

• Trend: Price vs 200 EMA aligns?
• Volatility: ATR sufficient? Stop ≥ 1–1.5×ATR.
• Signal: Confirmed candle close (e.g., MACD/RSI)?
• Margin mode: Isolated, leverage ≤ 5–10x, stop far from liquidation.
• Costs: Funding acceptable? Use limit orders.
• Order safety: Bracket/OCO set, reduce-only checked, quantity verified.

Simple liquidation sanity check

• For USDT perps, ignoring fees/MMR:
  • Long liquidation ≈ (1/leverage) below entry.
  • Short liquidation ≈ (1/leverage) above entry.
• Add buffer for fees and MMR; use exchange calculators.

Worked mini-scenarios

• Directional swing long (BTC): Risk 1%, 4H chart, 7x leverage, stop 600 away.
• High-leverage scalp (ETH): 25x leverage, stop 0.8% away; risky with wicks and fees.

When NOT to use leverage

• Near major news events.
• Low liquidity or illiquid assets.
• Without predefined stops and max loss limits.
• To chase losses.

Quick fee and funding math

• Break-even move ≈ (Fees + Funding) ÷ Notional.
• Hold 48h, funding 0.03%/8h + taker fees ≈ needs ~0.21% price move to break even.

Starter rules to copy

• Max risk/trade: 0.5–1%; max daily loss: 2–3%, then pause.
• Max leverage: BTC/ETH ≤ 10x; alts ≤ 5x; raise only after proven stats.
• Always use isolated margin; stop distance ≥ 1–1.5×ATR; liquidation buffer ≥ 3× stop distance.
• Cap holds or hedge if funding > 0.05%/8h against you.

article by Joe B. of TradingPal