Basic Concepts of Leverage Trading
What is Leverage?
Leverage refers to controlling larger amounts of trades with a small amount of capital.
Example:
You have $1,000
Using 10x leverage
You can control a $10,000 trade
Advantages and Risks of Leverage
Advantages:
- Higher returns with a small amount of capital
- Flexible use of funds
- Improved capital efficiency
Risks:
- Losses can also be magnified
- You may be liquidated
- Strict risk management is required
Choosing Leverage Multiples
Recommendation: Beginners should start with 2-5x and gradually increase.
Liquidation Price Calculation
What is Liquidation?
When your losses reach the margin level, the position will be automatically liquidated. This is called liquidation.
Liquidation Price Formula
Long Liquidation Price:
Liquidation Price = Entry Price × (1 - 1/Leverage Multiplier)
Short Liquidation Price:
Liquidation Price = Entry Price × (1 + 1/Leverage Multiplier)
Calculation Example
Example 1: BTC Long
Entry Price: $80,000
Leverage: 5x
Liquidation Price = $80,000 × (1 - 1/5) = $80,000 × 0.8 = $64,000
This means:
- If BTC drops to $64,000, you will be liquidated
- Maximum loss: $80,000 - $64,000 = $16,000
- But you only invested $16,000 ($80,000 / 5)
Example 2: Silver Long
Entry Price: $82.33
Leverage: 10x
Liquidation Price = $82.33 × (1 - 1/10) = $82.33 × 0.9 = $74.10
This means:
- If silver drops to $74.10, you will be liquidated
- Maximum loss: $82.33 - $74.10 = $8.23
- Your margin will be entirely lost
Example 3: Gold Short
Entry Price: $4,769.2
Leverage: 20x
Liquidation Price = $4,769.2 × (1 + 1/20) = $4,769.2 × 1.05 = $5,007.66
This means:
- If gold rises to $5,007.66, you will be liquidated
- Maximum loss: $5,007.66 - $4,769.2 = $238.46
- Your margin will be entirely lost
Importance of Liquidation Price
The closer the liquidation price is to the entry price, the greater the risk
Margin and Account Risks
What is Margin?
Margin is the funds you use to open a position.
Example:
Account balance: $10,000
Opened Position: $5,000 (5x leverage)
Margin: $1,000
Available Margin: $9,000
Margin Ratio
The margin ratio shows how much risk buffer your account still has.
Formula:
Margin Ratio = Available Margin / Position Value × 100%
Example:
Account balance: $10,000
Position Value: $50,000 (10x leverage)
Used Margin: $5,000
Available Margin: $5,000
Margin Ratio = $5,000 / $50,000 × 100% = 10%
Margin Ratio Risk Levels
Recommendation: Keep the margin ratio above 30%.
Risk Management Strategies
Strategy 1: Position Size Management
Principle: The risk for each trade should not exceed 2% of the account
Calculation Method:
Account balance: $10,000
Maximum Risk per Trade: $10,000 × 2% = $200
If entry price is $80,000, stop loss price is $75,000
Loss per trade: $5,000
Maximum Position Size: $200 / $5,000 = 0.04 BTC = $3,200
Strategy 2: Setting Stop Loss
Why It Matters:
- Limit loss per trade
- Protect the account
- Avoid excessive losses
How to Set:
- Determine risk tolerance (e.g., 2%)
- Calculate stop loss price
- Set stop loss order on the platform
Example:
Account: $10,000
Risk per trade: 2% ($200)
Entry price: $80,000
Stop loss price: $75,000
Position size: $80,000 × 0.04 BTC = $3,200
Strategy 3: Setting Take Profit
Why It Matters:
- Automate profit-taking
- Avoid greed
- Lock in profits
How to Set:
- Determine target profit percentage (e.g., 5%)
- Calculate take profit price
- Set take profit order on the platform
Example:
Entry price: $80,000
Target profit percentage: 5%
Take profit price: $80,000 × 1.05 = $84,000
Expected profit: $4,000 (based on $80,000 position)
Strategy 4: Diversifying Positions
Principle: Do not invest all funds into one trade
Suggested Allocation:
Total Account: $10,000
Allocation Plan:
- BTC Spot: $3,000 (30%)
- BTC Perpetual: $2,000 (20%)
- Silver Perpetual: $2,000 (20%)
- Gold Perpetual: $1,500 (15%)
- Cash Reserve: $1,500 (15%)
Strategy 5: Dynamic Leverage Adjustment
Principle: Adjust leverage based on market volatility
Adjustment Rules:
Low Market Volatility (< 2%): Use 10-20x leverage
Medium Market Volatility (2-5%): Use 5-10x leverage
High Market Volatility (> 5%): Use 2-5x leverage
Common Risks and How to Avoid Them
Risk 1: Over-Leveraging
Symptoms:
- Using 20+ times leverage
- Liquidation price is very close to entry price
- Any small fluctuation results in loss
How to Avoid:
- Beginners use 2-5x leverage
- Intermediate traders use 5-10x leverage
- Only professional traders use 20+ times leverage
Risk 2: No Stop Loss
Symptoms:
- No stop loss set for trades
- Hoping for a market rebound
- Ultimately liquidated
How to Avoid:
- Set stop loss for every trade
- Ensure stop loss price is reasonable
- Strictly implement stop losses
Risk 3: Overextended Position Size
Symptoms:
- Investing all funds into one trade
- Single trade losses exceed 5% of the account
- Overall account risk is too high
How to Avoid:
- Limit single trade risk to no more than 2% of account
- Diversify positions
- Maintain cash reserves
Risk 4: Chasing Highs and Selling Lows
Symptoms:
- Chasing prices when they go up
- Panic selling when prices drop
- Frequent trading leads to accumulated losses
How to Avoid:
- Develop a trading plan
- Follow the plan strictly
- Do not be driven by emotions
Risk 5: Ignoring Fees
Symptoms:
- Frequent trading
- High accumulated fees
- Profits wiped out by fees
How to Avoid:
- Reduce unnecessary trades
- Utilize Maker fees (-0.02%)
- Calculate cost of fees
Start now, join Hyperliquid, and become part of the global capital market traders.
Quick Start (Save 4% on Trading Costs)
Use invitation code: AICOIN88
Website:
https://app.hyperliquid.xyz/join/AICOIN88
📖 Beginner’s Guide! Hyperliquid First Trade Detailed Illustrated Tutorial
https://www.aicoin.com/zh-Hans/article/510225
Join our community, let's discuss, and grow stronger together!
Official Telegram community: t.me/aicoincn
AiCoin Chinese Twitter: https://x.com/AiCoinzh
Group chat - Wealth Group:
https://www.aicoin.com/link/chat?cid=10013
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
