Leverage, Explained Simply

On October 10, 2025, crypto positions worth over 19 billion dollars were forcibly liquidated in a single day — more than ever before. Over 1.6 million accounts were hit, 87 percent of them longs, and analysts believe the true total was considerably higher because not all exchanges report fully. The trigger was a single political announcement.

Most of those 1.6 million people probably couldn’t have explained to you what exactly happened to their money. That’s what this post catches up on: leverage, explained slowly and simply enough that truly anyone understands it — and honestly enough that nobody mistakes it for a tutorial. Because it isn’t one. This is the mechanics, not the advice.

Illustrative image, AI-generated.

What leverage is — in one paragraph

Leverage means trading with more money than you have. At 10x, your €100 steer a €1,000 position — the other €900 is “lent” by the exchange, and your stake serves as collateral (the margin). Every price move acts on the full position: if price rises 5%, you’ve made €50 — half your stake. If it falls 5%, half is gone. Leverage levers both directions. That’s the whole principle; everything else is the question of what happens when it runs against you.

Liquidation — the part everyone underestimates

The exchange doesn’t lend out of kindness, and it has no intention of losing its money. So there’s a line: if your collateral falls below a minimum — the maintenance margin — the exchange force-closes your position. That’s liquidation, and it happens before your stake would arithmetically hit zero: the buffer ensures the exchange can still close the position without paying the difference itself.

Where that point sits can be derived from exchange documentation — simplified for an isolated long: liquidation price ≈ entry × (1 − 1/leverage + maintenance rate). Sounds dry; becomes very vivid once you run it:

Three subtleties that never appear in promo threads: First, the math is simplified — fees and funding push the real point closer to your entry, so liquidation tends to come earlier. Second, you’re not liquidated on the last traded price but on the mark price — a smoothed fair price built from several exchanges. That protects you from single outlier candles (“scam wicks”), but it also means: what happens on your chart isn’t quite what your account lives and dies on. Third, the liquidation itself costs an extra fee that flows into the exchange’s safety pot — the insurance fund absorbs cases where a position closes worse than its bankruptcy price. And if even that runs short, auto-deleveraging kicks in: profitable positions of other traders get force-closed. In the extreme, you lose — despite being right. All the terms live in more detail in the trading terms index.

Funding: the quiet standing payment

Crypto leverage mostly runs on perpetual futures — futures without expiry. To keep their price tied to the real market, longs and shorts pay each other a periodic funding rate, typically every eight hours (more often on some contracts). If the mood is long-heavy, longs pay. Sounds small, but it compounds: hold a leveraged position for days and you pay for it continuously — to the other side, not to the exchange. A fine point: the rate contains a fixed interest component besides the premium, which is why it can be slightly positive even when the future isn’t trading above spot.

Cross or isolated — which failure mode?

Two ways to organize the collateral, two ways to lose: Isolated gives the position a fixed budget — if liquidated, exactly that budget is gone and the rest of the account stands. Cross throws the entire account onto the scale — pushing the liquidation point further away, but when it breaks, everything is in the fire. Neither is “safer”; they are two different distributions of the same risk.

The math nobody feels

The real reason leverage is harder than it feels isn’t an exchange rule — it’s arithmetic. Loss and required recovery are asymmetric:

Without leverage, this table is uncomfortable. With leverage it turns brutal, because leverage accelerates you down the rows: at 10x, a perfectly ordinary −5% move turns your stake into −50% — and from there you’d need +100% just to get back to even. Liquidation is the point of no return: after it there is no recovery, because nothing is left to recover. The price can come back an hour later. Your stake doesn’t come with it.

What the regulators say — and what the numbers say

It’s worth knowing how blunt the European supervisors are here. In 2018, ESMA capped leverage on crypto CFDs for retail clients at 2:1 — justified, among other things, by national regulators’ findings that 74 to 89 percent of retail CFD accounts lose money (ESMA’s 2018 survey; today every provider must state its own loss rate in the mandatory risk warning). Since August 2019, the BaFin general ruling has carried these rules forward in Germany — including a ban on margin calls beyond your stake; it remains in force today. And in February 2026, ESMA clarified that products marketed as “perpetual futures” with leveraged crypto exposure likely fall under exactly these rules.

Translated: the 50x and 125x offers you know are not a product that may legally be marketed to EU retail clients — they live on offshore exchanges outside this framework. (Precisely, because it gets muddled: using such products isn’t a crime — what’s regulated is offering and marketing them to retail.) Even the offshore venues don’t trust their newcomers much, by the way: since late 2025, Binance locks anything above 20x for accounts in their first 30 days. When even the casino seats you at the small tables first, that’s a statement. Which platform advertises which maximum — and what to make of it — sits in the verified leverage table in the crypto index.

The big days

To close, the evidence that none of this is theoretical. May 19, 2021: around 8 billion dollars of positions liquidated in 24 hours (data: bybt, today Coinglass). October 10, 2025: over 19 billion — the biggest day in crypto history, triggered by a tariff announcement; estimates including unreported volume run to 30–40 billion. February 1, 2026: another ~2.5 billion across one weekend (trackers differ by counting method). And the contrast belongs in the picture: the FTX collapse of 2022, the costliest crypto event of those years, was not a liquidation day — customer money vanished because the exchange itself fell. Leverage is only one of several risks you entrust to a platform.

What you do with all this is your decision — this post carries no recommendation, for or against any product. It has one goal only: that the mechanics are understood before they find someone. The key terms live in the index; and if you’d rather have the core rules of sober trading on your wall, the Crypto Collection includes the Trading Cheat Sheet — a tool, not investment advice.

Sources and limits

The liquidation mechanics and formulas come from exchange documentation (Binance FAQ and Bybit help); the example values are computed from them deterministically, using the base maintenance rate of the smallest position tier — real points vary slightly by exchange, position size, fees and funding, almost always toward “earlier.” The regulatory chronology is checked against ESMA and BaFin primary sources (ESMA measure 2018, BaFin ruling in force since 01.08.2019, ESMA’s perps clarification of 24.02.2026); the 74–89% loss rate is ESMA’s historical 2018 survey, not a running statistic. Liquidation totals come from aggregators (Coinglass et al.) and differ by counting method — they are orders of magnitude, not cent amounts.

Questions, or spotted a mistake? Write to me.