Lessons › Why traders lose › The leverage trap
World 11 · Why traders lose · lesson 8 · level 1
The leverage trap
Leverage multiplies every price move against your own money, so one normal day can empty the deposit, and it does not improve your odds.
In one line
Leverage, trading with borrowed money, feels like a shortcut. It is also how accounts get emptied fastest.
Explained simply
Leverage means trading with borrowed money, so the trade is bigger than the money you put in. Say you put in $1,000 at 10x: you control $10,000, and every move hits your money ten times as hard. A 1% move is 10% of your money. A 10% move against you wipes it all out, and platforms usually close the trade even earlier. At 25x, one normal Bitcoin day against you, about 3.9% from low to high, takes 97.5% of what you put in. Leverage does not make you right more often. It makes losses arrive faster.
A worked example
An example: $1,000 at 10x controls $10,000. Price moves 5% against you: 5% × 10 = 50% of your money, so $500 of your $1,000 is gone. At 25x, one normal Bitcoin day against you: 3.9% × 25 = 97.5% of your money. All before fees, and platforms close the trade even earlier.
Mistakes to avoid
- Treating leverage as a shortcut to grow a small account.
- Forgetting that leverage multiplies losses exactly as much as gains.
- Thinking you have room until a 10% move at 10x: platforms close the trade even earlier.
- Believing leverage improves your odds. It only makes losses arrive faster.
Check yourself
What is leverage?
Trading with borrowed money. Borrowed money makes the trade bigger than your own money, so every move, up or down, hits you harder.
You put in $1,000 at 10x. Price moves 1% against you. How much of your money is that?
10%. At 10x you control $10,000, so a 1% move is $100: 10% of your $1,000.
At 10x, how big a move against you wipes out all the money you put in?
10%. 10% × 10 = 100% of what you put in. Most platforms close the trade even earlier, to protect the money they lent.
Between 74 and 89 in 100 leveraged accounts of ordinary EU traders lost money. What does leverage change?
How fast gains and losses arrive. Leverage does not make you right more often. It multiplies every move, so losses arrive faster.
At 25x, about how big a price move against you empties the money you put in?
4%. 4% × 25 = 100%, before fees. A normal Bitcoin day, about 3.9% from low to high, already takes 97.5%.
Goal of this lesson: Work out what a price move does to your own money at a given leverage.