Oversimplified Liquidation In Leverage Trading

Leverage trading is becoming more and more popular this days, the reason of course is that if it used properly a ridiculous amount of money can be made there. But just like everything a lot of money can also be lost using leverage because unlike spot trading when you take on leverage and buy long or short position you can get liquidated but many doing it don't understand the risks because while all exchanges are waring about the dangers they are highlighting the pros more they are giving a lot of incentives to use leverage trading. In this post i will try to give some over simplify explanation of what you should calculate when you leverage trade and how you get liquidated.

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1. Get 4x leverage:
   Your first task is to divide 100 by the leverage, which means 100/4=25. This indicates that if the position you opened moves against your desired direction by 25%, then you need to liquidate it (margin call😢).
   For example, if BTC trades at 20,000 and you open a long position, and then it drops 25% (falls to 15,000), you would face a liquidation.

Another example is if you open a short position when BTC is at 20,000, and then it rises 25% (to 25,000), you again face liquidation.

1. Get 12x leverage:
   Your first task is to think if you are taking on too much risk with 12x leverage when you don't fully understand what you are doing. Then, you calculate 100/12, which equals 8.333.
   This indicates that if the position you opened moves against your desired direction by 8.33%, you will get liquidated. For instance, if you opened a long position and the price dropped by 8.33%, or if you opened a short position and the price increased by 8.33%, you would get liquidated.

When you use leverage, the duration of your position is limited because you have "borrowed" money. The limitations are determined by the percentage mentioned above. Also, depending on the coin you chose , there may be additional costs associated with holding a position for a longer period of time. Sometimes, the longer you hold the position, the more you pay, while other times, the shorter you hold it, the more you pay, depending on the currency/period. Therefore, it's essential to evaluate the cost of ownership before holding a position for an extended period.