Definition ∞ Derivatives leverage allows traders to control a large position in digital assets with a smaller amount of initial capital. This mechanism amplifies potential gains or losses by utilizing borrowed funds or margin in futures, options, or perpetual contracts. Traders deposit a fraction of the total trade value, known as margin, to open positions significantly larger than their direct capital allocation. The inherent risk increases proportionally with the degree of leverage employed.
Context ∞ The use of derivatives leverage is a significant aspect of cryptocurrency trading, influencing market volatility and liquidation events. Discussions often revolve around the systemic risks posed by excessive leverage during periods of high market instability. Regulatory bodies are increasingly scrutinizing leveraged product offerings to protect retail participants and maintain market integrity.
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