Leverage has become one of the most tempting tools for people, but in reality it is a great danger that threatens your money, your psychological life and your health. In short, it makes you trade with larger amounts than you actually have, but the problem is that you are exposed to losing all your money in a moment due to market movements that can be very violent. In this article, we will explain in detail the risks of leverage.

What is leverage?

Leverage gives you the "feeling" that you have more money than you actually have. That means if you have $100, you can trade as if you have $1,000 or even $10,000. But if the market moves against you even slightly, all of your money can be lost.

Why leverage is dangerous

The crypto market is terribly volatile.

Cryptocurrencies change their prices dramatically and in a very short time. If you use leverage, any move against you will hit you hard and you will lose all your money.

Liquidation

If the market moves against you significantly, the platform you are trading on may liquidate your account, meaning you sell everything to recoup the amount you borrowed, and then you will come out of the game empty-handed.

Serious psychological and health problems

The constant fear of losing your money will make you live in constant stress and this will affect your mental health.

Leverage creates a feeling similar to gambling and this leads some people to fall into a cycle of trading addiction.

When you lose your hard-earned money, it's natural to feel frustrated and disappointed, and this can lead to depression.

Constant psychological stress can cause diseases such as high blood pressure, heart problems, and even stomach ulcers.

Real Stories of Leverage Losses

In 2021, someone used 1:100 leverage on Bitcoin, expecting the price to increase, but a sudden market crash occurred, and all his money ($50,000) evaporated in less than an hour.

Three Arrows Capital is a very large investment company that used excessive leverage when the market crashed in 2022, the company lost billions and was forced to declare bankruptcy.

Sharia opinion on leverage

In Islam, leverage is forbidden because it involves the suspicion of usury and gharar (excessive risk).

Usury Trading platforms charge interest on the amounts you borrow to use in trading, and this is considered usury, which is forbidden by Islamic law.

Leverage is like gambling because you are risking all your money in the hope that the market will move in your favor. Islam prohibits this type of speculation because it is based on luck more than planning.

The Egyptian Dar Al-Iftaa and the Islamic Fiqh Academy have confirmed in many fatwas that the use of financial leverage is completely forbidden.

How to protect yourself

Stay away from leverage completely, no matter how tempting it is, as the risks involved are much greater than any possible profit you can achieve.

Invest only your money. Work with the amount you can afford to lose without resorting to borrowing.

Leverage is a trap that tempts you with quick profit, but in reality it can waste all your money in a moment and put you in a spiral of psychological and health problems. From a religious standpoint, using leverage is forbidden because it is based on usury and excessive risk. This is, of course, just an opinion and you are free to do so. 😊👻

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