Hi folks I have been reading the docs and want

Question

Hi folks I have been reading the docs and want

to make sure I understand how this works before I invest. When I purchase a long position and use leverage I can hold the position for a few weeks if the price doubles on the asset I could sell the long to collect my profit. If it was a leveraged position the profits will be multiplied. But if the token decreases in price I will not lose my initial investment even if I’m leveraged on it?….is this the correct thought process?

#cryptocurrency #english #perp

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22.10.2021

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Pavel Anokhin

No, if the token decreases in price, you will lose depending on your leverage. Example: you open long 2 ETH @ 1000, use 2x leverage, so you have to provide 1000 USDC to open this position if the price rises to 1500, your profit = 2 * (1500 - 1000) = 1000, so you double your 1000 USDC if the price falls to 600, your loss = 2 * (600 - 1000) = -800, so you will only have 200 USDC left of your original amount

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22.10.2021

Tomek · Accepted Answer

Using leverage puts your funds at risk of liquidation at any time. For example, you open an ETH long position worth 1000 USDC backed by a margin of 100 USDC. Your margin ratio is 10%, equivalent to a leverage of 10x. If ETH falls in value, you start to lose money, resulting in a negative PnL. PnL is added to your margin, so in our example, your margin will start to go below 100 USDC, in turn decreasing your margin ratio. If the margin ratio falls to 6.25%, then your position may be liquidated.

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