Don't open a "sell" position before you understand this example! 📉🚨
Many beginners fall into the trap of leverage without understanding the "liquidation price". Let's compare two scenarios to know how to protect your capital:
Example: A currency worth $1 $ONE and your capital is $10.
1️⃣ Scenario One: Without leverage (Leverage 1x)
You opened a short position with 10 units.
Liquidation price: None! Theoretically, since you are not borrowing, you will only be liquidated if the price rises by 100% to wipe out your entire portfolio value, but even in this case, your available account covers the loss. (High security).
2️⃣ Scenario Two: With only $1 and 10x leverage (Leverage 10x)
You borrow from the platform to open a larger position.
Liquidation price: Only $1.10!
Why? Because you are in a short position, you lose if the price rises. 10x leverage means that a price increase of only 10% (100% ÷ 10) will completely wipe out the $1 you have, and here Binance will close your position (liquidation).
In summary: Leverage is a powerful tool, but it is a double-edged sword. With high leverage, your margin of safety is very narrow.
Note: We do not encourage trading in contracts but only for educational purposes.
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What leverage do you prefer to use in your trading? Share with us in the comments! 👇