What is leverage?
Updated
In simple terms, Leverage has a multiplier effect on your profits as well as losses. If your losses exceed the amount you have deposited in your Locked Margin (L%)* account, the exchange will give you a margin call or will liquidate your positions to compensate for the losses.
To understand the potential, we will consider two scenarios for traders, one with leverage and one without leverage.
No Leverage:
Suppose you have INR 7000 or 100 USDT (assuming 1 USDT is 70 INR) which can help you buy 0.01 BTC when the price of BTC is USDT 10,000. Let’s say in a week, BTC’s price increased by 10%, currently trading at USDT 11,000. Your profit would be USDT 10.
Return on Investment (ROI) = 10/100 = 10%
Leverage:
You deposit INR 7000 in the deposit margin.
Let’s assume you have INR 7000 or 100 USDT (assuming 1 USDT is 70 INR) and you take 10x leverage, which can help you buy 0.1 BTC when the price of BTC is USDT 10,000. Let’s say in a week, BTC’s price increased by 10%, currently trading at USDT 11,000. Your profit would be USDT 100.
P&L = 10*0.01*(11,000 - 10,000) = 100 (USDT)
ROI = 100/100 = 100%
