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 USD long position in XBT/USD with 5:1 leverage. In this scenario, only one-fifth of this amount, or 1,000 USD worth, will be tied to the position from your collateral balances. Your remaining collateral balances will be available for opening more positions.
If you open this same position with 2:1 leverage, 2,500 USD worth of your collateral balances will be tied to the position.