Leverage
Leverage ratio · Margin trading
Trading a position several times bigger than the money you put up (the margin), so gains and losses grow by the same multiple.
Simple explanation
Background: Korean exchanges (Upbit, Bithumb, Coinone and Digital X, formerly Korbit) do not offer futures; leveraged futures are offered by overseas exchanges such as Binance. The word comes from a lever: a small amount of money moves a much larger position.
On futures you do not pay the full value of a position. You put up part of it as collateral, called margin, and leverage is the position size divided by that margin: ₩1,000,000 of margin behind a ₩10,000,000 position is 10x.
A 1% price move is a 1% gain or loss on the position, but on your margin it is multiplied by the leverage: 10% at 10x, 50% at 50x. Losses grow exactly as fast as gains.
If losses push your margin below the maintenance margin (the minimum needed to keep the position open), the exchange closes the position for you: liquidation. Roughly, a move of 1 ÷ leverage against you wipes out the margin, which is about 10% at 10x, 2% at 50x and 1% at 100x. Because of the maintenance margin and fees, liquidation actually comes a little earlier.
There are two margin modes. With isolated margin you can lose only the margin assigned to that position. With cross margin the rest of your account balance backs the position too, which delays liquidation but puts more money at risk at once.
Trading fees and funding are charged on the position size, not on your margin, so higher leverage also means higher costs relative to the money you put in.
The maximum leverage differs by exchange and coin, gets lower as the position grows, and changes with exchange policy and local regulation. The higher the leverage, the smaller the price swing it takes to be liquidated.
When a lot of leverage has built up and the price moves sharply, liquidations can set off one another and swing overseas prices even harder. If Korean prices do not follow at the same speed, the kimchi premium can widen or shrink sharply for a short while.
Example
Margin ₩1,000,000, Bitcoin long (entry price ₩100,000,000)
At 1x → position ₩1,000,000 → a 5% rise: +₩50,000 (5% of the margin)
At 10x → position ₩10,000,000 → a 5% rise: +₩500,000 (50% of the margin)
Same 10x, a 5% fall → -₩500,000 (half of the margin)
At 10x, a 10% fall to ₩90,000,000 → a ₩1,000,000 loss = all of the margin → in practice the maintenance margin triggers liquidation a little before that, after a fall of just over 9%
With a 0.05% trading fee, opening the position costs ₩500 at 1x and ₩5,000 at 10x (fees are on the position size)
※ Example numbers, for illustration only
See it on CoinGaja
- CoinGaja does not show futures or leverage data. The gap between Korean and overseas spot prices (the kimchi premium) is here:
- Bitcoin Kimchi Premium›
- CoinGaja Kimchi Premium Index›
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