Recently, I’ve seen people discussing leveraged trading again, and it reminded me that this topic is still worth having a good conversation about. To be honest, leverage looks enticing, but it’s also one of the tools most likely to get people “blown up.”

First, let’s clarify what leveraged trading actually means. Simply put, it’s borrowing money from a broker or a platform to invest—using less of your own capital to control larger assets. For example, if you have 100,000 yuan and borrow 900,000 yuan, for a total investment of 1,000,000 yuan, that’s 10x leverage. It sounds like you’re using a small amount of money to lever a large one—very much like what Archimedes said: give me a fulcrum, and I can move the Earth. In financial markets, the power of leverage really is astonishing.

But here’s the problem. I once came across a real case. A Korean YouTuber, in 2022, was trading cryptocurrency futures and went long on Bitcoin with 25x leverage. In just a few hours, he lost more than $10 million. At the time, he bet that BTC would rise and opened the position at $41,666, but when Bitcoin broke below $40k, he added more leverage, and he was ultimately liquidated. This story is enough to show just how dangerous leverage is.

Let me use an example from Taiwan index futures to explain the principle in a concrete way. Suppose the recent closing price of the Taiwan index is 13,000 points, and each point is worth 200 yuan. The total value of one Taiwan index futures contract would be 2.6 million yuan. But you don’t need to pay the full amount—you only need to pay the margin. For example, 136,000 yuan. That means your leverage multiple is close to 20x, allowing you to control assets worth 2.6 million yuan with just 136,000 yuan.

Sounds great? Yes—if the Taiwan index rises by 5%, your 136,000 yuan can earn 130,000 yuan, which is close to a 96% return. But conversely, if it drops by 5%, your principal is almost completely wiped out. That’s the double-edged nature of leverage at its core: it magnifies gains, but it magnifies risk as well.

I’ve noticed that many young investors often go into leverage trading with the mindset of, “If I win, I’ll make a fortune—if I get liquidated, I just don’t need to top up.” But the market is cruel. Once you can’t replenish the margin, the broker will forcibly settle your losing position to avoid losing money themselves. This is what’s called a liquidation—or being cut off.

The main tools for leverage trading include futures, options, leveraged ETFs, and contracts for difference. Futures are the most traditional and can be used to trade forex, commodities, stock indices, and more. Options are when the buyer pays a premium to obtain the option to choose whether to buy or sell. Leveraged ETFs are suitable for short-term trading, but their transaction costs are 10 to 15 times higher than futures. Contracts for difference are a common model used by overseas brokers, allowing two-way trading of various assets.

If you want to use leverage, my advice is to start by practicing with low leverage multiples first, and always remember to set stop-loss points. Whether you choose 1x or 20x leverage, planning your risk management in advance is the key. Robert Kiyosaki once said that the moderate use of leverage is a way to increase your return—but the focus is on knowing how to properly use the borrowed money to increase wealth.

Leverage itself isn’t a bad thing. The key is how you use it. If you can use leverage to increase returns while keeping risk under control, then it’s fine. But if you’re just thinking about taking a gamble, you need to be prepared to face the consequences of losing your principal. When the market is volatile—especially when high-volatility products are combined with high leverage—the speed of liquidation can be so fast you won’t have time to react.