Leverage

In plain English

Leverage compares exposure with the capital committed to support it. It lets a trader obtain a larger market position than the collateral alone would buy in a spot market. The same relationship also makes a modest move in the underlying price produce a much larger percentage change in the trader’s collateral.

No separate lender needs to hand the trader the full notional amount for the ratio to exist. A derivatives venue creates exposure through its contract and controls risk through margin and liquidation rules.

How it works

For a simple isolated position, leverage can be expressed as:

leverage = position notional value ÷ collateral

The relationship can change after opening. Unrealized losses reduce the equity supporting a position and therefore increase effective leverage; unrealized gains can do the reverse. Cross-margin accounts use portfolio-level equity, so their displayed leverage may follow a different calculation.

Why it matters

Higher leverage generally leaves less room for an adverse move before maintenance margin is breached. Yet two positions with the same leverage can have different risk because volatility, liquidity, collateral type, funding, fees, and stop execution also affect the outcome.

Worked example

A $5,000 position supported by $1,000 of collateral begins at 5× leverage. If the underlying market moves 4% against the position, the simplified directional loss is $5,000 × 0.04 = $200.

That is a 20% loss relative to the starting collateral before funding and fees. A 4% favorable move would produce a $200 gain before costs. This symmetry describes PnL, not the venue’s exact liquidation boundary.

How it works on Lynx

On Lynx, documented position size equals position collateral multiplied by leverage. The opening fee is deducted from the deposited collateral first, so the final position collateral—and the position size produced from it—can be lower than a simple pre-fee estimate.

Lynx calculates position health from the traded instrument and position accounting. A price move in the collateral token itself does not change the position’s leverage or liquidation health.

Common misconception

Ten-times leverage does not mean a trader automatically loses everything after exactly a 10% adverse move. Maintenance margin, fees, funding, price calculation, and liquidation execution all affect the actual threshold.