Leverage increases exposure position, not the quality of the idea
Let’s say a trader has 100 USDT in margin and opens a position worth 500 USDT with 5x leverage.
A 2% move of the underlying asset against the position would result in roughly a 10 USDT loss before considering fees, funding, and the specifics of margin. That’s about 10% of the initial 100 USDT, even though the actual move itself was only 2%.
That’s why I would plan a TradFi Perp in this order:
1. Maximum allowable loss.
2. The level where the scenario becomes invalid.
3. The required position notional.
4. Only then—leverage.
Liquidation can happen earlier than the simple arithmetic “100% divided by leverage,” because maintenance margin and risk rules apply.
Leverage is a regulator of position size, not a way to make a weak thesis stronger.
#TradFi
Let’s say a trader has 100 USDT in margin and opens a position worth 500 USDT with 5x leverage.
A 2% move of the underlying asset against the position would result in roughly a 10 USDT loss before considering fees, funding, and the specifics of margin. That’s about 10% of the initial 100 USDT, even though the actual move itself was only 2%.
That’s why I would plan a TradFi Perp in this order:
1. Maximum allowable loss.
2. The level where the scenario becomes invalid.
3. The required position notional.
4. Only then—leverage.
Liquidation can happen earlier than the simple arithmetic “100% divided by leverage,” because maintenance margin and risk rules apply.
Leverage is a regulator of position size, not a way to make a weak thesis stronger.
#TradFi