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This lesson is going to teach you everything you need to know about leverage so that you can avoid mistakes in the market so first of all what you’re going to see in read next is going to seem complex at first that is because trading is complex and difficult

You need to understand leverage because smart money understand leverage and dumb money doesn’t smart money takes money from dumb money who are lazy arrogant or ignorant if you choose to remain lazy arrogant or ignorant you will lose money and you will not make it in trading so

Let’s teach you what the smart money know so that you can compete on a Level Playing Field with them first let’s talk through some terms in leverage collateral start from the basics the assets that you must hold in your account as a form of security to cover potential losses most common form of

Collateral is usdt so collateral is the stuff you need to use to trade with Leverage is where you borrow money from The Exchange to borrow money they have to lend it to you to lend it to you it has to be in some form the most common

Is usdt and usdt Perpetual Futures are the ones they recommend you use next we have margin margin is the amount of collateral that you must hold in your account as the form of security to cover those losses sounds similar to Collateral but it’s different collaterals is the actual thing usdt

Margin is the amount of the thing you need yeah then we have the initial margin also known as the cost this is the amount of collateral required to open a position in Perpetual Futures the initial margin is set by The Exchange and may be different for each coin and

Each exchange very important so now we know the cost so the amount you actually need to open a position is the cost just like the cost of doing business in anything the amount you put forward is the initial margin then we have the maintenance margin rate MMR the

Maintenance margin is the minimum amount of collateral required to keep a position open in Perpetual Futures so once you’re actually in the position and it’s in profit or in loss you have what’s called a maintenance margin that you have to maintain it’s a percentage you must must maintain in order to keep

That position from getting liquidated when the losses will exceed your maintenance margin you’ll be liquidated the maintenance margin rate is a percentage of the notional size of your position it’s very very very important always know the MMR for your coin again like the initial margin it’s set by The

Exchange and it’s different for each coin and it’s different for each exchange then we have the notional size also known as the value this is the total value of your position when it’s actually open notional size is always in dollars that’s what notional means it’s the number of coins your position size

Multiplied by the current price of one coin and this as you’d expect changes in real time if you buy one Bitcoin at 30k you go long one Bitcoin at 30k your notional size is 30,000 if Bitcoin then goes to 35 your notional size is now 35,000 similarly if it drops to 25,000

It’s now 25 leverage we still havn’t talked about it till now because leverage comes last I want you to remember that leverage comes last it does not matter how much Leverage you use what matters is how much money you risk on each trade if you’ve got $1,000 in your portfolio Okay

Your total account size is $1,000 and you have it stored on your wallet and you want to risk 1% on each trade which is a sensible risk your stop loss should be set to lose $10 regardless of Leverage make sense $10 is 1% of a th000

So your stop loss is more important than the leverage you use if wherever your stop- loss is means you have lost $10 you have managed your risk how do we then get leverage Leverage is simply the amount you need to borrow from The Exchange after you know your entry

Stoploss and notional position size okay that’s why I say leverage comes last you have to calculate everything else first before leverage and The Leverage that you require will be different for each trade internalize that the leverage required will be different for each trade so if you see people saying I’m

Going 50x long or 10x long or 5x long it doesn’t make any sense that’s stupid every Trad is is different based on your entry your stop loss and your available balance your leverage will be different every time so the calculation if you ever need for leverage very very simple

Is your risk divided by your entry minus stop loss so your risk in dollar terms the amount you want to lose if you’re wrong divided by the entry price minus the stop loss price that’s it that gives you a position size that you need to place and then we take from that

Leverage for example stick with the $10 you want to risk $10 1% of your portfolio on an atom long trade so your entry would be $10.60 so that’s the price of atom we’re going to buy atom at 1060 we’re going to put our stop loss at

$101 how you calculate from there is you take the $10 $10 risk divided by the entry minus the stop which is $10.60 minus $101 which is 50 which gives you 20 that means you need to buy 20 atom because if you buy 20 atom at $10.60 and

It hits your stop loss at $101 10 you will lose $10 from your portfolio perfect manage risk next you calculate the notional size of that because you need to know what 20 atom is in dollar terms that’s how you then finally get to your leverage so we have 20 atom we

Multiply it by the price at entry which is 1060 which gives us $212 so now finally we can calculate the Leverage The Leverage is simply the amount you have to borrow from The Exchange to open a $212 position let’s go onto the exchange and look at example

To make it more clear for you we are here on atom I have placed the position tool to show you the entry at 1060 the stop loss at 1010 okay we know that we need to buy 20 atom if we want to risk $10 so we go to our order form we type

In the order price in a limit order which is 1060 okay because price is up here and we’re entering down here we use a limit order because we have to wait for price to come down to get filled you’ve saw that in a previous lesson we know we

Need 20 atom now we put a stop loss at 1010 and we make sure that we’re doing things right we put that in we look at the automatic calculator which says your expected loss will be $10 perfect so we know that’s going well we know that’s

Working now we look at the value it’s 212 see the green green for long red for short we’re going long 212 perfect everything’s going great so far we’re currently setting up our trade well now we need to enter that trade so that it goes on the exchange this is where

Leverage comes in because as you see I have 1 x leverage which means no leverage it’s just flat I go and I click buyong and it fails order submission failed insufficient available margin well why is that that’s because in this account as you can see at the bottom I

Have $84 available so if I have $84 but the value is 212 and the cost is 212 and a little bit extra for fees I cannot open that position I have 84 the cost is 212 so what do we do now we use leverage so very simply I

Want to move the leverage bar across until I have enough collateral for the cost of the trade so if I move it to 2X and I confirm we’ll see that the cost is now 106 the cost is basically gone in half because I’m using 2x leverage but

That’s no that’s no good I have $84 the cost is 106 still too expensive I can’t do it so I move it again let say we go to three now look the cost is 70 roughly and I have 84 my risk is still 10 I’m still getting 20 at them and my order

Price is correct my stop loss is correct now I can buy long and it will execute it won’t fail it now goes on the exchange note at this point you might say where’s the stop loss on this exchange every exchange is different but on buybit when this actually fills the

Stop loss will immediately get added there so don’t worry that will get added on at the time so that is how you calculate leverage you notice that it was the last thing I did you have to understand where you’re entering where your stop loss is and your size and your

Notional size and then how much Equity you have in your account before you worry about the leverage so I just set it at 3x and you see now that I have an available balance of 13 that means it’s taken the $70 that were needed and tied

Them up for this trade so if I wanted to make any other trades I now only have $13 to work with and that is how you manage your risk with your collateral that explains how to set trades up and how to manage and calculate your Leverage