Leverage lets you open a position bigger than the money you put in. You put up a margin, the exchange lends the rest, and your position moves as if you owned the whole thing. A gain is multiplied. So is a loss. That second half is the part this article is about.
We write this because the question we get is usually "how much leverage should I use", and the honest answer is that the number is not yours to pick first. Your stop-loss picks it for you.
What liquidation means
When you trade with leverage, the exchange is lending you money and holding your margin as security. If the market moves against you far enough that your loss is close to eating that margin, the exchange closes the position itself. That is liquidation. You do not get a vote, and you usually lose the whole margin.
The distance from your entry price to that forced close is the liquidation distance. As a rough rule, before fees and the exchange's maintenance margin, it is about 100 divided by your leverage, in percent. The exact figure is smaller in practice, because exchanges close you out a little before your margin reaches zero.
| Leverage | Approximate move to liquidation |
|---|---|
| 2x | about 50% |
| 5x | about 20% |
| 10x | about 10% |
| 25x | about 4% |
| 50x | about 2% |
| 100x | about 1% |
Read the bottom rows slowly. A 1% move in a crypto market is not an event. It can happen in a single minute, on no news at all.
Why the stop-loss comes first
A stop-loss is the price at which you decide, in advance, that the trade idea was wrong and you leave. It is your exit. Liquidation is the exchange's exit. The only sane arrangement is that your exit sits well inside theirs, so that you leave on your own terms and keep most of your margin.
That gives a simple rule. Your stop-loss distance has to be comfortably smaller than your liquidation distance. If your stop is 5% below entry, 20x leverage puts liquidation at roughly the same place, which means your stop is decorative. At 10x you have some room. At 5x you have real room, and a sudden wick through your stop is a loss rather than a wipeout.
Size the position from the stop, then read off the leverage
Most people set leverage, then pick a position, then look for a stop. Turn that around.
- Decide how much of your account you are willing to lose on this one trade if the stop is hit. Many traders keep this small, a percent or two.
- Decide where the stop goes based on the chart, not on how much you would like to risk. A stop that is too tight gets hit by noise.
- Divide the money you are willing to lose by the stop distance. That is your position size.
- Compare that position size to the money you actually have on the exchange. The ratio is the leverage you need.
A worked example with made-up numbers. You have 1,000 dollars on the exchange and you are willing to lose 20 dollars on a trade. The chart says the stop belongs 4% below entry. Twenty dollars divided by 4% is a position of 500 dollars. That is half your balance, so your leverage is 0.5x. No borrowing at all.
Notice what happened. A sensible risk limit and a sensible stop produced a position that needs no leverage. That is the normal result for a trader who starts from the loss they can accept. Leverage shows up only when you want a bigger position than your risk rule allows, which is the same as saying you want to break your own rule.
Why most traders should not use much
- Crypto prices move several percent in a day as a matter of course, and sometimes in minutes. High leverage puts liquidation inside that normal range.
- Losses compound against you. Lose half your account and you need to double what is left just to get back to where you started.
- Leverage adds costs. Borrowing fees and funding payments run whether or not the trade is going your way.
- The stress is real. A position that can vanish on a 2% move is hard to hold calmly, and decisions made under that pressure are usually worse.
Some experienced traders use modest leverage, with wide stops and small risk per trade. They can do that because the stop and the position size were worked out first. Leverage was the last number on the page, not the first.
Where Atheron Trading fits
Atheron Trading is built around the idea that your rules come before any trade. You set a budget, a stop-loss and a list of coins, and those rules are checked before every trade the bot places. Two AIs must agree before anything happens, one reading price and volume, one reading news and social posts, and every trade comes with an explanation. The bot trades in your own exchange account through an API key that can trade but never withdraw, and we never hold your money.
None of that removes the risk of trading crypto. A stop-loss limits how much a single trade can cost you, it does not make the market go your way, and losses are a normal part of trading. If you want to see how a stop-loss rule behaves before any real money is involved, paper trading runs with pretend money at real prices, and until launch that is the only way the bot trades. You can read more at Atheron Trading.
Start from the loss you can accept. Set the stop where the chart says it belongs. Let those two numbers tell you how big the position can be. If the answer is "no leverage", that is not a failure. For most people, most of the time, it is the right answer.
