Extreme leverage involves the use of a very high ratio of borrowed capital to personal capital in financial trading, particularly within digital asset markets. This practice amplifies potential gains but also significantly magnifies potential losses, leading to heightened risk exposure. It allows traders to control large positions with minimal upfront investment.
Context
Extreme leverage is a significant factor in the volatility of cryptocurrency markets, contributing to rapid price swings and liquidations. Regulators frequently express concerns about its use, particularly by retail investors, due to the substantial risks it presents to market stability and individual financial well-being. Calls for stricter controls are common.
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