Recently, a friend asked me what leveraged trading is all about, and I realized that many beginners are still a bit confused about this. So I decided to organize my own thoughts and share them with everyone.

To be honest, I was scared by Bitcoin’s price at first, too. Around mid-year last year, BTC had already pushed past $100k. For small investors, it was basically impossible to buy a whole coin. At that point, if you could use leverage, things would be completely different.

The core concept of leveraged trading is actually very simple: you don’t need to put up all your funds. You only have to pay a portion as margin, and you can control a much larger crypto position. For example, if I want to buy 0.01 BTC, in normal circumstances it would cost $1,085. But if I use 10x leverage, I only need to put up about $108.5. The barrier drops by ten times—that’s the power of leverage.

However, using leverage also comes with a price to pay. First are interest fees: the borrowed funds are charged interest at a certain rate. Second are trading fees or spreads—different platforms charge in different ways. There’s also overnight fees: if you hold a position overnight, you have to pay overnight interest. Some platforms may also require sharing your leveraged trading profits, and you need to understand these details in advance.

As for how to choose leverage multiples, my own experience tells me that while high leverage can make money faster, it also comes with greater risk. For instance, let’s say I have 100,000 TWD that I want to invest in Bitcoin. If I use 10x leverage and Bitcoin rises 10%, I earn 100,000 TWD—my money doubles. But if Bitcoin drops 10%, I lose my entire principal and get forced-liquidated. By comparison, with 2x leverage, a 10% rise or fall only leads to a 20,000 TWD profit or loss. It doesn’t look as thrilling, but at least I’m still in the game.

My current advice is: if you’re just getting into the crypto space, never start out by using high leverage. Crypto is already highly volatile, and using lower leverage helps you control risk better. Even if capital efficiency isn’t as high, the most important thing is to survive and be able to see the next opportunity.

Calculating the principal needed for leveraged trading isn’t actually difficult. The formula is the trading asset price divided by the leverage multiple. For example, if Bitcoin’s price is $60k and you buy 1 contract (0.01 BTC) with 10x leverage, the margin you need is 60,000 multiplied by 0.01 divided by 10, which equals $60.

There’s another important concept in leveraged trading called initial margin and maintenance margin. Initial margin is the minimum amount of funds required to open a position, while maintenance margin is the minimum balance you must keep. Once your funds fall below the maintenance margin, the platform will issue a margin call to notify you to add more money; otherwise, it will directly liquidate your position. This mechanism is designed to protect both the platform and yourself.

I want to emphasize risk management in particular. First, set a stop-loss point—since leverage amplifies volatility, without a stop-loss it’s like gambling. Second, choose a reasonable leverage multiple; don’t be lured by the tempting returns of high leverage. Finally, pay attention to volatility across different trading periods, because some times are especially risky.

When it comes to trading platforms, there are many that offer leveraged trading services, and each has its own features. Some platforms let you open with very high leverage, some provide a more user-friendly trading interface, and others support multi-market investing. When choosing a platform, look at your own needs and don’t blindly follow the crowd.

Overall, leveraged trading is a double-edged sword. Used well, it can help you achieve big gains with small capital. Used poorly, it can wipe you out completely. From my own experience, the right approach is to start with low leverage to get familiar with the market, and only consider increasing the multiple after you truly understand the risks. The most common mistake beginners make is greed—then, after a single market swing, they get forced out. I hope everyone can last a little longer in the crypto market.