During a leveraged trade, a trader borrows money to increase his position. The more money the trader borrows, the higher the leverage. The chances of gains and losses are then all the greater. Here is an example:
Trader A has a capital of 100,000 euros. The price of Bitcoin is 100,000 euros per BTC. Without leverage, the trader can only buy one bitcoin. But if he borrows 900,000 euros from the exchange, he can use them to buy 10 BTC for a million euros - he also has a leverage effect of 10x (100,000 x10 =1,000,000).
If the price then increases by 1% and it sells, it has not only earned 1,000 euros (or 1% of 100,000 euros), but 10,000 euros! (I.e. 1% of 1,000,000 euros). Conversely, if the price drops by 1%, the loss is 10,000 euros instead of 1,000 euros.
If the price drops by 10%, then the loss turns out to be 100,000 euros. Sachat that the loss is greater than the capital invested by the trader, his position is "liquidated": the position is closed and the money is lost.
As a general rule, traders also use "stop loss" and "take profit" orders for leveraged transactions.
