What is leverage
Assalamu Alaikum
How are you? By Allah's grace, I'm doing very well. Today, the topic I want to discuss is what is leverage.
So leverage means suppose you have $100, you buy bitcoins with that $100. If Bitcoin is up 1 percent then your profit here will be one dollar. Now you think if you had 1000 dollars here and if you bought BTC with that 1000 dollars then now you would have 10 dollars profit. Now the problem is you don't have any more dollars. Now basically all the leveraged trading platforms out there give you loans. For example, you have 100 dollars and you have taken 10x leverage. Through this, another 900 dollars will be given to you by the exchanger as a loan. Then your original balance will be $1000. Now if you buy bitcoin with 1000 dollars and if bitcoin goes up 1 percent then your profit here will be 10 dollars.
And if Bitcoin is up 10% here your profit will be $100. Similarly, if Bitcoin goes down by one percent here, your loss will be $10. And this ten dollars will be deducted from your main balance. Then if you have 90 dollars. And if you go long or shot here, the US moves 10% against you. This percentage however depends on your leverage. What percentage means how much x you took. I have taken 10% leverage for example and if the market comes to 10% at 10% leverage then your position will be liquidated. And the $100 you have will be gone.
That means you will have no more dollars to continue the position. And the loan has been given to you to make a profit. No matter if you make a profit of 100 dollars, 200 dollars, 500 dollars, 1000 dollars with this dollar, there is no problem, but no one will give you money to lose. If you can profit here then of course you will pay back their loan while closing the position. And you will remove your profile. If you lose their money, who will pay this money? So they will close your position. That means you won't have any more dollars to lose.
Today's discussion concludes here. I hope you've found it interesting. Please share your thoughts on today's topic. Prayers for everyone. May everyone be well. Amen.
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Peace & Love!
Bringing up important points, thank you please share more posts like this.
The post was in detail. So I enjoy your post. Thanks.
Good explained. It’s an informative post... Thanks for sharing this brother.
Appreciate your use of examples to beautifully explain to us what leverage is, it has been really understood by me atleast thanks to you.