Recently, I’ve been looking at some trading cases and found that many people are both fascinated and afraid of leveraged investing. This is actually very normal. Because leverage is like a double-edged sword; used well, it can amplify returns, but used poorly, it can lead to liquidation.

Let me tell a true story first. In 2022, there was a Korean YouTuber named Satto who used 25x leverage to go long on Bitcoin during a live stream. As a result, BTC dropped from 41,666 below 40,000, and he directly lost over 10 million USD. This is not a small number; it’s a lesson of total loss. Many people seeing this case might wonder, how could it be so tragic? Actually, it’s because he underestimated market volatility and overestimated his judgment.

So what exactly is leverage? Simply put, it’s borrowing money to invest. If you have 100k and borrow 900k, investing a total of 1 million, that’s 10x leverage. It sounds like an easy way to double your money, but the key is the concept of margin. Taking Taiwan index futures as an example, if the Taiwan index is at 13,000 points, with 200 NT dollars per point, one contract is worth 2.6 million NT dollars. But you don’t need to pay the full amount; you only need to put up the margin, say 136k NT dollars. Then the leverage ratio is 2.6 million divided by 136k, which is about 19 times.

This shows the power of leverage. If the Taiwan index rises by 5%, you make 130k NT dollars, with a return rate close to 96%. But if it drops by 5%, your 136k NT dollar principal is almost entirely lost. The same 5% fluctuation, when amplified by leverage, becomes a completely different world. Therefore, the higher the leverage, the more dramatic the gains and losses.

Nowadays, many young people like to play with high leverage, with the mindset of “win big if I win, don’t need to top up if I get liquidated.” But the market won’t change because of your mindset. If you can’t top up your funds in time, the broker will forcibly close your losing positions, which is liquidation.

What are the pros and cons of leveraged investing? The advantage is obvious: controlling a larger market with less capital, improving capital efficiency, and multiplying profits when successful. But the disadvantage is equally deadly: increasing the risk of liquidation, magnifying losses. Especially during intense market volatility, risks are unpredictable.

There are several common leverage tools on the market. Futures are the most traditional, with underlying assets including metals, indices, agricultural products, energy, etc. Before expiration, you can choose to close or roll over. Options give you the right to buy or sell specific assets. Leveraged ETFs are suitable for short-term trading, but their transaction costs are 10 to 15 times higher than futures, so you need to consider if it’s worth it. There are also Contracts for Difference (CFD), which are common with overseas brokers, allowing two-way trading without holding actual assets, and the product variety is also diverse.

In the end, leverage itself is not a bad thing. Robert Kiyosaki once said that moderate use of leverage can increase returns; the key is how to use it. If you want to try leveraged trading, it’s recommended to start with low multiples and practice. Always set stop-loss points, and remember that risk management is more important than chasing huge profits. The market will always teach lessons to those overconfident.