{"id":10340,"date":"2023-08-18T09:16:06","date_gmt":"2023-08-18T09:16:06","guid":{"rendered":"https:\/\/www.bitnovo.com\/blog\/?p=10340"},"modified":"2025-09-10T15:24:02","modified_gmt":"2025-09-10T15:24:02","slug":"what-is-leverage-in-trading","status":"publish","type":"post","link":"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading","title":{"rendered":"What is leverage in trading and how does it work?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Alternar tabla de contenidos\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#what_is_leverage_in_trading\" >What is leverage in trading?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#how_does_leverage_work_in_trading\" >How does leverage work in trading?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#types_of_leverage_in_the_markets\" >Types of leverage in the markets<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#leverage_in_forex\" >Leverage in Forex<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#leverage_in_cryptocurrencies\" >Leverage in Cryptocurrencies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#leverage_in_stocks\" >Leverage in Stocks<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#differences_between_regulated_markets_and_decentralized_platforms\" >Differences between regulated markets and decentralized platforms<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#practical_example_of_a_leveraged_trade\" >Practical example of a leveraged trade<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#trading_with_leverage_vs_without_leverage\" >Trading with leverage vs. without leverage<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#advantages_of_leverage_in_trading\" >Advantages of leverage in trading<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#risks_of_leverage_what_you_should_keep_in_mind\" >Risks of leverage: what you should keep in mind<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#best_practices_and_risk_management\" >Best practices and risk management<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-leverage-in-trading\/#conclusion_when_to_use_leverage\" >Conclusion: when to use leverage?<\/a><\/li><\/ul><\/nav><\/div>\n<span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 7<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span><p>Today, we\u2019ll dive into a fundamental and often misunderstood concept in the trading world:\u00a0<strong>leverage<\/strong>. Leverage allows you to trade with much more capital than you actually own, which can result in significantly larger profits if the market moves in your favor.<\/p>\n<p>However, it\u2019s important to understand that this same feature also means that losses can be equally magnified, potentially even exceeding your initial investment if not managed properly. It\u2019s a powerful tool, but one that requires very careful risk management.<\/p>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter size-large wp-image-22778\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento-compressed-1024x683.jpg\" alt=\"Bitnovo_leverage_trading\" width=\"1024\" height=\"683\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento-compressed-1024x683.jpg 1024w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento-compressed-300x200.jpg 300w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento-compressed-768x512.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento-compressed-1536x1024.jpg 1536w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento-compressed-2048x1365.jpg 2048w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<p>That\u2019s why, if you have any doubts about leverage in trading, in this article we\u2019ll try to explain as clearly as possible the questions you may have had at some point.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"what_is_leverage_in_trading\"><\/span><strong>What is leverage in trading?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Very simply, <a href=\"https:\/\/www.forex.com\/es-latam\/about-us\/trade-prices\/trade-margins\/#:~:text=%C2%BFQu%C3%A9%20es%20el%20apalancamiento%3F,posici%C3%B3n%20por%20valor%20de%20%24%2050.\">leverage in trading<\/a> is like borrowing capital to increase the size of an investment position beyond what your own capital would allow. A\u00a0<strong>broker<\/strong>, an individual or institution that facilitates transactions between a buyer and a seller, lends you a portion of the funds needed to open a trade, in exchange for you depositing a smaller amount, known as\u00a0<strong>margin<\/strong>.<\/p>\n<p>In other words, it means being able to trade with more money than you actually have in your broker account. Beware, though\u2014while leverage allows you to multiply your profits, it also increases losses if a position moves against you.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"how_does_leverage_work_in_trading\"><\/span><strong>How does leverage work in trading?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>We\u2019ve already seen that leverage allows traders to operate with larger volumes than they own. Therefore, they can <a href=\"https:\/\/www.tradersbusinessschool.com\/apalancamiento-trading\/\">access<\/a> markets that are often otherwise inaccessible.<\/p>\n<p>A multiplier is typically used to express leverage, showing how many times the size of an open position compares to the trader\u2019s actual funds used in that position.<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-22578 size-full\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/APALANCAMIENTO-EN-TRADING.jpg\" alt=\"Bitnovo_leverage_margin\" width=\"720\" height=\"405\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/APALANCAMIENTO-EN-TRADING.jpg 720w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/APALANCAMIENTO-EN-TRADING-300x169.jpg 300w\" sizes=\"(max-width: 720px) 100vw, 720px\" \/><\/p>\n<p>For example, if a trader wants to execute a trade with a leverage ratio of\u00a0<strong>1:10<\/strong>, it means they only need\u00a0<strong>1%<\/strong>\u00a0to open a position. With an initial deposit of\u00a0<strong>$1,000<\/strong>, they can gain exposure equivalent to\u00a0<strong>$10,000<\/strong>.<\/p>\n<ul>\n<li><strong>1:10 (one to ten).<\/strong>Means that for every\u00a0<strong>$1<\/strong>\u00a0of your capital, the broker allows you to control\u00a0<strong>$10<\/strong>\u00a0in the market.<\/li>\n<li><strong>1:100 (one to one hundred).<\/strong>For every\u00a0<strong>$1<\/strong>\u00a0of your capital, the broker allows you to control\u00a0<strong>$100<\/strong>\u00a0in the market. With\u00a0<strong>$1,000<\/strong>, you could control a position of\u00a0<strong>$100,000<\/strong>.<\/li>\n<li><strong>1:500 (one to five hundred).<\/strong>For every\u00a0<strong>$1<\/strong>\u00a0in your account, you can move\u00a0<strong>$500<\/strong>\u00a0in the market.<\/li>\n<\/ul>\n<p>In reality, for each position and instrument we open, our broker will specify a required\u00a0<strong>margin<\/strong>\u00a0as a percentage. Therefore, the margin can be considered a form of collateral for the short-term loan our broker provides along with the instrument itself. That is, it\u2019s the minimum amount we must maintain to keep trading.<\/p>\n<p>Certainly, the margin is the collateral you deposit to cover potential losses in a leveraged trade. It\u2019s a portion of your capital that is locked while the trade is open.<\/p>\n<p>To better understand, let\u2019s look at it this way: you want to open a position of\u00a0<strong>$100,000<\/strong>, and your account leverage is\u00a0<strong>1:100<\/strong>. Therefore, your broker requires\u00a0<strong>$1,000<\/strong>\u00a0from your account as margin. Suppose this position gains\u00a0<strong>1%<\/strong>. That means you\u2019ll have made\u00a0<strong>$1,000<\/strong>, i.e.,\u00a0<strong>100%<\/strong>\u00a0of your total invested capital.<\/p>\n<p>Very importantly, if the market moves against you and your losses reach a certain level, the broker may ask you to add more funds\u2014a\u00a0<strong>margin call<\/strong>\u2014or automatically close your position to prevent your losses from exceeding your initial margin.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"types_of_leverage_in_the_markets\"><\/span><strong>Types of leverage in the markets<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>When seeking financing to invest, we can do so in different ways. Broadly speaking, there are several types of leverage:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter size-large wp-image-22780\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento2-compressed-1024x561.jpg\" alt=\"Bitnovo_leverage_cryptocurrencies\" width=\"1024\" height=\"561\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento2-compressed-1024x561.jpg 1024w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento2-compressed-300x164.jpg 300w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento2-compressed-768x421.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento2-compressed-1536x841.jpg 1536w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento2-compressed-2048x1122.jpg 2048w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<h3><span class=\"ez-toc-section\" id=\"leverage_in_forex\"><\/span><strong>Leverage in Forex<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The word\u00a0<strong>\u201cForex\u201d<\/strong>\u00a0is short for\u00a0<strong>\u201cForeign Exchange\u201d<\/strong>, and it\u2019s the international market where global currencies are traded. Here, you\u2019ll see how much the US dollar is worth against the euro or the fluctuating value of the Japanese yen against the British pound, among many other currencies. What truly distinguishes Forex is its accessibility and flexibility. We could say that leverage in Forex is:<\/p>\n<ul>\n<li>A mechanism that allows traders to execute trades with a volume several times greater than the actual amount of money available in their account.<\/li>\n<li>A margin trading instrument, where borrowed funds are used to increase the size of your position and, in this way, multiply your profits if capital is insufficient.<\/li>\n<li>The maximum Forex leverage is specified in the trading conditions for each account type. For example, the maximum leverage for one account is\u00a0<strong>1:200<\/strong>, and for another, it\u2019s\u00a0<strong>1:1000<\/strong>.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"leverage_in_cryptocurrencies\"><\/span><strong>Leverage in Cryptocurrencies<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Also known as\u00a0<strong>margin trading<\/strong>. It provides greater purchasing power and exposure to the trader through borrowed capital. Leveraging allows the trader to multiply the size of their positions and generate greater potential profits.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"leverage_in_stocks\"><\/span><strong>Leverage in Stocks<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Like other types of securities, it\u2019s possible to profit from price changes in stocks, both on exchanges and over-the-counter markets.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"differences_between_regulated_markets_and_decentralized_platforms\"><\/span><strong>Differences between regulated markets and decentralized platforms<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The financial industry is evolving rapidly, and two terms often heard today are\u00a0<strong>CeFi<\/strong>\u00a0and\u00a0<strong>DeFi<\/strong>.\u00a0<strong>CeFi<\/strong>\u00a0is an acronym for\u00a0<strong>\u201cCentralized Finance\u201d<\/strong>. This type of financing, which serves as the foundation of the global financial system, is usually managed by a central authority.\u00a0<strong>Blockchain<\/strong>\u00a0technology has given rise to a new financial sector known as\u00a0<strong>Decentralized Finance (DeFi)<\/strong>, which is not governed by a single entity.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-22782\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento3-1-1024x614.jpg\" alt=\"Bitnovo_cefi_defi\" width=\"1024\" height=\"614\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento3-1-1024x614.jpg 1024w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento3-1-300x180.jpg 300w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento3-1-768x461.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento3-1.jpg 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<p>That is, the main difference between regulated markets and decentralized platforms lies in the presence or absence of centralized intermediaries and oversight by authorities. Below are their distinctive features:<\/p>\n<ul>\n<li>Offers leverage through centralized intermediaries, such as banks and exchanges.<\/li>\n<li>Offers leverage through\u00a0<strong>Blockchain<\/strong>\u00a0technology to enable peer-to-peer transactions directly, without intermediaries.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"practical_example_of_a_leveraged_trade\"><\/span><strong>Practical example of a leveraged trade<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Next, let\u2019s look at an example of how leverage works in a real Forex trade:<\/p>\n<ul>\n<li>Suppose you want to trade\u00a0<strong>EUR\/USD<\/strong>and have\u00a0<strong>$1,000<\/strong>\u00a0in your account.<\/li>\n<li>You\u2019ll use a leverage ratio of\u00a0<strong>1:50<\/strong>, so your\u00a0<strong>$1,000<\/strong>can control a position of\u00a0<strong>$50,000<\/strong>.<\/li>\n<li>If the\u00a0<strong>EUR\/USD<\/strong>exchange rate moves\u00a0<strong>1%<\/strong>\u00a0in your favor, you\u2019ll make a\u00a0<strong>$500<\/strong><\/li>\n<li>However, if the exchange rate moves\u00a0<strong>1%<\/strong>against you, you\u2019ll have lost\u00a0<strong>$500<\/strong>.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"trading_with_leverage_vs_without_leverage\"><\/span><strong>Trading with leverage vs. without leverage<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The choice between trading with or without leverage depends on several factors, including the trader\u2019s\u00a0<strong>risk tolerance<\/strong>, available capital, and strategy. The\u00a0<strong>minimum deposit<\/strong>\u00a0is a vital factor influencing trading conditions and accessibility. Regardless of the approach, it\u2019s essential to understand the risks and manage capital effectively.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-22783\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento4-compressed-1024x683.jpg\" alt=\"Bitnovo_leverage_risks\" width=\"1024\" height=\"683\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento4-compressed-1024x683.jpg 1024w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento4-compressed-300x200.jpg 300w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento4-compressed-768x512.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento4-compressed-1536x1024.jpg 1536w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/bitnovo-levering-leverage-apalancamiento4-compressed-2048x1365.jpg 2048w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"advantages_of_leverage_in_trading\"><\/span><strong>Advantages of leverage in trading<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>We already know what leverage in trading is. But what does it mean for a trader? Next, we\u2019ll present the main advantages of this type of investment.<\/p>\n<ul>\n<li><strong>Multiplication of profit potential.<\/strong>Allowing investors to access more capital. This can be particularly useful in low-movement markets.<\/li>\n<li><strong>Lower initial investment.<\/strong>Enables traders to diversify their portfolio without tying up a large amount of capital in a single investment.<\/li>\n<li><strong>Access to otherwise unreachable market opportunities.<\/strong>Leverage gives investors the possibility of acquiring high-priced financial assets they otherwise couldn\u2019t afford.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"risks_of_leverage_what_you_should_keep_in_mind\"><\/span><strong>Risks of leverage: what you should keep in mind<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>While greater exposure can be profitable, it can also backfire and multiply losses:<\/p>\n<ul>\n<li><strong>Proportional amplification of losses.<\/strong>Leverage increases profits but also losses. A small adverse move can quickly wreak havoc on your account.<\/li>\n<li><strong>Risk of automatic liquidation.<\/strong>The risk of a margin call increases with leverage, and if you fail to meet it, your positions may be closed, causing significant losses.<\/li>\n<li><strong>Psychological factors: overconfidence, greed.<\/strong>The pressure of working with leveraged positions can be exhausting. It\u2019s crucial to maintain discipline and follow a good trading strategy.<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-22584 size-large\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/APALANCAMIENTO-RIESGOS-1024x576.jpg\" alt=\"Bitnovo_ltc_management\" width=\"1024\" height=\"576\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/APALANCAMIENTO-RIESGOS-1024x576.jpg 1024w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/APALANCAMIENTO-RIESGOS-300x169.jpg 300w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/APALANCAMIENTO-RIESGOS-768x432.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/APALANCAMIENTO-RIESGOS.jpg 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<p>Indeed, while leverage allows for amplified gains, it also multiplies losses. A small adverse market move can quickly wipe out an investor\u2019s account, especially if they use very high leverage and lack proper risk management. Below is an example:<\/p>\n<p>On\u00a0<strong>September 2, 1998<\/strong>, John Meriwether, Chairman of\u00a0<strong>LTCM (Long-Term Capital Management)<\/strong>, sent a letter to his investors <a href=\"https:\/\/www.aeaweb.org\/articles?id=10.1257\/jep.13.2.189\">stating<\/a> that the fund had lost\u00a0<strong>$2.5 billion<\/strong>\u00a0that year. In short, due to its extreme leverage, even small market moves in the wrong direction resulted in exponential losses. The fall of LTCM was so rapid and massive that it threatened the stability of the global financial system.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"best_practices_and_risk_management\"><\/span><strong>Best practices and risk management<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li><strong>Use of stop-loss.<\/strong>Used to automatically close a position if the market moves against the trade. When trading <a href=\"https:\/\/www.bitnovo.com\/en\/price\/bitcoin\/\">cryptocurrencies<\/a>, it\u2019s advisable to place a stop-loss at the nearest local low to avoid further loss, severe drawdowns, and liquidations.<\/li>\n<li><strong>Use of take-profit.<\/strong>A pending order that helps automatically take profits when the chart crosses the target level. It\u2019s especially useful for beginners, who may struggle to predict the variable price range needed to reach the target value.<\/li>\n<li>To avoid problems,\u00a0<strong>calculate your losses before opening each leveraged trade.<\/strong>The leverage ratio you use should match your risk profile.<\/li>\n<li><strong>Never trade with money you can\u2019t afford to lose.<\/strong><\/li>\n<li><strong>Evaluate the asset\u2019s volatility.<\/strong>If you don\u2019t protect your capital, you\u2019ll never succeed as a Forex trader. However, you must maintain discipline, avoid excessive leverage, and, above all, never trade more than you can afford to lose.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"conclusion_when_to_use_leverage\"><\/span><strong>Conclusion: when to use leverage?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>It\u2019s especially important to use a\u00a0<strong>margin trading platform for <a href=\"https:\/\/www.bitnovo.com\/en\/price\/bitcoin\/\">cryptocurrencies<\/a><\/strong>\u00a0that provides risk management tools. Whether you prefer spot trading or leveraged cryptocurrency trading, you should take the choice of platform seriously.<\/p>\n<p>However, while potential profits increase, so do risks proportionally. The reckless use of high leverage has repeatedly led novice traders to blow up their entire trading accounts.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-22585 size-full\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/CONCLUSION-APALANCAMIENTO.jpg\" alt=\"\" width=\"710\" height=\"450\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/CONCLUSION-APALANCAMIENTO.jpg 710w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2023\/08\/CONCLUSION-APALANCAMIENTO-300x190.jpg 300w\" sizes=\"(max-width: 710px) 100vw, 710px\" \/><\/p>\n<p>That\u2019s why it\u2019s important to always use this tool with caution, opening a larger position only if you feel confident, as the leverage effect is the most powerful weapon a trader has if used wisely. This is even more true with cryptocurrencies, because the volatility of digital asset markets already creates higher risks of losses.<\/p>\n<p>To conclude, leverage is crucial for anyone interested in trading. Although it\u2019s a very useful tool, it also carries risks if not used prudently.<\/p>\n<p>Or, as stated by the\u00a0<strong>National Securities Market Commission (<a href=\"https:\/\/www.cnmv.es\/portal\/inversor\/glosario?id=0&amp;term=Apalancamiento%20financiero&amp;idlang=1&amp;lang=es#:~:text=En%20los%20mercados%20de%20valores,de%20un%20volumen%20muy%20superior.\">CNMV<\/a>)<\/strong>:\u00a0<strong>\u201cPrudence and education are essential when trading with leverage. Investors must understand the inherent risks before committing their capital, as oversight seeks to protect, but the final responsibility lies in each individual\u2019s informed decision.\u201d<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p><span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 7<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span>El apalancamiento te permite operar con m\u00e1s dinero del que tienes, amplificando tanto las ganancias como las p\u00e9rdidas. En esta gu\u00eda completa para 2025, te explicamos c\u00f3mo funciona, qu\u00e9 riesgos implica y c\u00f3mo gestionarlo correctamente, con ejemplos reales y buenas pr\u00e1cticas.<\/p>\n","protected":false},"author":40,"featured_media":8000,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[165],"tags":[],"class_list":["post-10340","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptocurrencies"],"_links":{"self":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/10340","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/users\/40"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/comments?post=10340"}],"version-history":[{"count":8,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/10340\/revisions"}],"predecessor-version":[{"id":24668,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/10340\/revisions\/24668"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media\/8000"}],"wp:attachment":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media?parent=10340"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/categories?post=10340"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/tags?post=10340"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}