📝A common misconception is that higher leverage = greater profit/loss

It is not true.

Leveraged trading essentially means that you put up a portion of a certain position size as collateral and essentially “borrow” the rest.

The important relationship is:
more margin = more collateral = less leverage.
less margin = less collateral = more leverage.

The final position size determines how much you will earn/lose, while the final leverage determines the liquidation price (as a product of the position's hedge level).

Let's go back to our original example:

Petya has a $10,000 position with 10x leverage.

Vanya has a position size of $10,000 with 5x leverage.

They make the same trade and the price moves 5% in their favor.

Question: Who will make more money?

Answer: They make the same amount of money because their position size is the same.

the difference is that Petya has a closer liquidation price because he set a smaller margin = more leverage, and Vanya has a further liquidation price because he set a higher margin = less leverage.

Therefore, position size is the key variable, and leverage really determines your capital efficiency, that is, how many dollars you invest for a given position size.

so the whole "counterparty risk reduction leverage" thing - if you normally trade with a position size of $50,000, you can achieve this by keeping only $10,000 on the exchange and using 5x leverage. this way, if the exchange goes bankrupt, you lose $10,000, not the entire $50,000.