In crypto trading, leverage is a powerful tool that allows traders to control larger positions with a smaller initial investment. Adjusting leverage can significantly impact your risk and potential reward. However, understanding how to use it effectively is key to maintaining a balanced trading strategy. This article will explain how adjusting leverage works, including examples and important considerations.
How to Adjust Leverage of a Position
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Tap on the Market Tab
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In the Flipster interface, find and tap on the [Market] tab. This is where you can view and select the different types of markets available to trade, including perpetual contracts.
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Once you’re in the Market section, tap on [Perpetual] to access the perpetual trading options. This is where you can manage your open positions and leverage.
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Look for the trading pair that you currently have an open position in. For example, if you have an open position in BTCUSDT, locate and select that specific pair to proceed with the leverage adjustment.
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Tap on Adjust Leverage Under Open Positions
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Under the [Open Positions] section, find the position you want to adjust leverage. Tap on the [Adjust Leverage] option under your open position.
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Choose Your Desired Leverage
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You will now be presented with an option to set the leverage you want to apply to your position. You can adjust the leverage based on your risk tolerance and market outlook. Simply select the leverage amount that fits your strategy.
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After selecting the desired leverage, tap on [Confirm] to finalize the adjustment. The new leverage will be applied but will only take effect on new positions being added.
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How Adjust Leverage Works
The "Adjust Leverage" function allows traders to change the leverage applied to their existing position. This can help you manage your risk exposure by either increasing or decreasing the leverage.
Important Notes:
- Higher Leverage = Higher Risk: Increasing leverage amplifies both potential profits and losses. While it allows you to open a position with a smaller capital, you run a higher risk of liquidation as it allows only a small marginal price movement against your favor.
- Lower Leverage = Increased Margin: When you decrease leverage, your position requires more margin to maintain. Ensure you have enough funds in your account to support the higher margin requirements.
- Adjusting leverage does not affect your current position’s initial margin or liquidation price. The changes you make will only apply to new positions you add after the adjustment.
- Decreasing leverage is only possible if you have added funds to the position before the adjustment. If no fund was added previously, you will not be able to decrease the leverage.
- Isolated Margin Only: Each position is treated independently and leverage adjustment only applies to the individual position you’re adjusting, not for all positions.
- Affects New Positions Only: After adjusting leverage, the interface will NOT show the effective leverage for the position you’re modifying. The new leverage setting will only apply to positions you add after making the change.
If no new position is added:
To ensure that the adjusted leverage (specifically increasing leverage) is reflected correctly, user will need to remove the excess margin from the current position. This can be done through the Adjust Funds Invested function.
Visit the Adjust Funds Invested article here, under How to remove funds for more information.
Example 1: Increasing Leverage
Let’s say you opened a long position of 1 BTC at 90,000 USDT with 10x leverage, using 9,000 USDT as your margin. The liquidation price of this position will depend on other factors and leverage.
Now, you decide to increase your leverage to 20x. However, this will not affect your current margin or liquidation price for the 1 BTC position you opened at 90,000 USDT. The new leverage setting will only apply to any new positions you add after this adjustment.
Example:
- Original Position: 1 BTC at 90,000 USDT with 10x leverage requiring 9,000 USDT margin.
- After Adjusting Leverage to 20x: Your margin requirement is halved to 4,500 USDT. However, this only applies to new positions you added after making this adjustment. Your current position of 1 BTC at 90,000 USDT with the 9,000 USDT margin requirement remains unchanged.
What Happens When You Add a Position After Increasing Leverage?
When you increase leverage and add to an existing position, the following changes occur:
- Position Size Increases: The size of the position grows as more funds are added using the adjusted leverage.
- Effective Leverage Updates: The effective leverage recalculates to reflect the new combined position size and margin.
- Liquidation Price Adjusts: Adding to the position with higher leverage shifts the liquidation price closer to the current market price, increasing risk.
Initial Position Setup
- Direction: Long
- Entry Price: 90,000 USDT
- Leverage: 10x
- Margin (Initial Margin): 9,000 USDT
- Position Value (Contract Size): 1 BTC × 90,000 USDT = 90,000 USDT
- Maintenance Margin: 450 USDT
- Liquidation Price: 90,000 - [(9,000 - 450) / 1] = 81,450 USDT
You decided to increase leverage to 20x and another 1 BTC to your position at the same entry price of 90,000 USDT.
- New Margin Requirement for Additions: 90,000 / 20 = 4,500 USDT
- Total Position Value (Contract Size): 2 BTC × 90,000 USDT = 180,000 USDT
- Total Margin: 9,000 (existing) + 4,500 (new) = 13,500 USDT
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Liquidation Price After Adding Position
- New Maintenance Margin: 2 x 90,000 x 0.5% = 900 USDT
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Updated Liquidation Price: Average Entry Price - [(Total Margin - Maintenance Margin) / Total Quantity]
- Liquidation Price: 90,000 - [(13,500 - 900) / 2
- Liquidation Price: 83,700 USDT
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Effective Leverage: While the new leverage (20x) applies to the additional position, the effective leverage of the entire position recalculates.
- Effective Leverage = Total Position Value / Total Margin
- Effective Leverage = 180,000 / 13,500
- Effective Leverage = 13.33x
Illustration:
Initial Position
Entry Price | Position Size | Leverage | Initial Margin | Liquidation Price |
90,000 USDT | 1 BTC | 10x | 9,000 USDT | 81,450 USDT |
After Adjusting Leverage to 20x and Adding 1 BTC position
Entry Price | Position Size | Effective Leverage | Initial Margin | Liquidation Price |
90,000 USDT | 2 BTC | 13.33x | 13,500 USDT | 83,700 USDT |
Example 2: Decreasing Leverage
If you want to decrease leverage, you will need to have added funds to your position previously. Decreasing leverage increases the required margin, thus requiring additional funds to be in place before the leverage adjustment can be applied.
Example:
Let’s say you have a 1 BTC position at 90,000 USDT with 10x leverage, and your margin is 9,000 USDT. Now, you want to decrease your leverage to 5x to reduce the risk of liquidation.
- To decrease leverage: You need to add funds to your position. For example, if you add 9,000 USDT to your margin, you can now decrease your leverage to 5x.
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Effect on Position:
- Original Position: 1 BTC at 90,000 USDT with 10x leverage, requiring 9,000 USDT margin.
- After Adding Funds and Decreasing Leverage to 5x: The required margin for the position increases to 18,000 USDT. By adding funds, your leverage decreases, and your liquidation price moves further away from the entry price, lowering the risk of liquidation.
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