Leverage allows you to open a larger position with a smaller amount of funds.
Utilizing leverage trading can get you a much larger return than traditional trading, but also opens you up to more risk. It’s important to utilize stop loss orders to mitigate your risk when trading on a margin.
How does leverage work?
Let’s say you open a $5,000 position in XBT/USD with 5:1 leverage. In this scenario, only one-fifth of this amount, or $1000, will be tied to the position from your balance. Your remaining balance will be available for opening more positions.
If you open this same position with 2:1 leverage, $2,500 of your balance will be tied to the position.
If you open with 1:1 leverage, $5,000 of your balance will be tied to the position.