With leverage, traders are able to achieve less with more but at the same time the risks and returns are both amplified. Prices of digital assets can be volatile, please access your risk with care.
Traders on AAX are allowed up to 100X leverage in a single trade. To leverage a position means basically that one borrows funds to be able to increase the position size in contracts while using less from one’s capital/margin. Depending on how it is being used, it can decrease the risk by decreasing the used capital and set funds free for other trades. At the same time, it also increases the chances of one getting liquidated.
For example, a client enters 1000 contracts of BTCUSD, at price 4000. The notional value in BTC is 1000 / 4000 = 0.25 BTC. With a 10x leverage, the trader will only need to deposit 0.25 / 10 BTC = 0.025 BTC of initial margin to maintain the position.
Initial margin is the amount of collateral required to open a position for leverage trading.
Initial Margin = Order Value / Leverage
Using leverage is a double-edged sword, it can lead to significant profits or complete bankruptcy. The higher the leverage used, the smaller the initial margin required, however, the closer your liquidation point is. The liquidation point is the price you position is automatically closed by the exchange, and it is determined by what level of leverage you use.