Leverage and Margin
Understanding leverage, margin requirements, and liquidation risks
Documentation
What is Leverage?
Leverage allows you to control a larger position with a smaller amount of capital. On Cafe Trading, you can use up to 100x leverage on USDT/THB perpetual futures, which means you can control $10,000 worth of USDT/THB with just $100 in margin.
Benefits of Leverage
- Amplified profits on winning trades
- Capital efficiency
- Access to larger positions
- Better portfolio diversification
Risks of Leverage
- Amplified losses on losing trades
- Higher liquidation risk
- Increased volatility exposure
- Emotional stress and pressure
How Leverage Works
Example: 10x Leverage
If USDT/THB moves 1% in your favor, you gain $10 (10% return on your $100 margin). If it moves 1% against you, you lose $10 (10% loss on your $100 margin).
Low Leverage (2x-5x)
- • Lower risk, lower reward
- • Good for beginners
- • More room for error
- • Suitable for long-term positions
Medium Leverage (10x-25x)
- • Balanced risk/reward
- • Requires experience
- • Good for swing trading
- • Need proper risk management
High Leverage (50x-100x)
- • Very high risk, high reward
- • For experienced traders only
- • Suitable for scalping
- • Requires tight risk control
Understanding Margin
Margin is the amount of money you need to deposit to open a leveraged position. There are different types of margin requirements you need to understand.
Initial Margin
The minimum amount required to open a position.
Formula: Position Size ÷ Leverage
Example: $1,000 position ÷ 10x = $100 initial margin
Maintenance Margin
The minimum margin required to keep a position open.
Typically: 50% of initial margin
Example: $50 maintenance margin for $100 initial margin
Available Margin
Your account balance minus used margin.
Formula: Account Balance - Used Margin
Use: Available for new positions
Margin Ratio
Current margin level as a percentage.
Formula: (Account Balance ÷ Used Margin) × 100
Safe Level: Above 200%
Liquidation Risk
Liquidation occurs when your margin ratio falls below the maintenance margin requirement. Understanding and managing liquidation risk is crucial for successful leveraged trading.
What Happens During Liquidation?
- • Your position is automatically closed
- • You lose your initial margin
- • Liquidation fee may be charged
- • No possibility to recover the position
Liquidation Price Calculation
The price at which your position will be liquidated depends on:
- • Entry price
- • Leverage used
- • Position direction (long/short)
- • Maintenance margin rate
Preventing Liquidation
- • Use lower leverage
- • Add more margin to positions
- • Set stop-loss orders
- • Monitor positions regularly
- • Keep extra funds in account
Risk Management with Leverage
Position Sizing Rules
- • Never risk more than 1-2% of account per trade
- • Use position size calculators
- • Consider correlation between positions
- • Adjust size based on market volatility
- • Start small and scale up gradually
Leverage Guidelines
- • Beginners: 2x-5x maximum
- • Intermediate: 5x-20x with experience
- • Advanced: 20x+ with strict discipline
- • Reduce leverage in volatile markets
- • Never use maximum available leverage
⚠️ Critical Leverage Warnings
- • High leverage can lead to total loss of capital
- • Market gaps can cause losses exceeding your margin
- • Emotional trading increases with leverage
- • Practice with low leverage before increasing
- • Never borrow money to trade with leverage
- • Understand that 90% of high-leverage traders lose money