Origin Dictionary / OD-051
Leverage
A 10% market move can take half your capital.
01Dictionary Meaning
Leverage uses borrowing or financial instruments to create exposure larger than the capital committed, magnifying gains and losses relative to that capital.
02What People Think
"It's the same trade, just with a bigger return."
03What’s Underneath
Put up $100 and borrow $400 to buy $500 of an asset. A 10% price fall removes $50 of value: half the original $100, before interest and fees.
The lender's claim does not shrink with the asset. Depending on the arrangement, falling collateral can trigger a demand for more money or a forced sale before any recovery.
Some positions can lose more than the initial amount committed. Leverage changes not only the size of the result but also the holder's ability to wait for it.
04The Game
Who controls the position if collateral falls, and can the trade survive the path the price takes before the hoped-for outcome?
05One Line
With leverage, being right later can still involve being forced out earlier.
Explore M3 Library
M3Crypto Investor Consciousness
See how borrowed exposure changes control over time.
References 1
- Brokerage Accounts
FINRA
The example uses five-times exposure and ignores costs; liquidation and loss limits vary by product.
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