High Leverage Risk

Definition ∞ High leverage risk refers to the heightened danger associated with using borrowed funds to amplify investment returns. In digital asset trading, high leverage allows participants to control a large position with a relatively small amount of their own capital. While this can magnify profits during favorable market movements, it also drastically increases potential losses, leading to rapid liquidations when prices move adversely. This risk is particularly pronounced in volatile crypto markets, where sudden price swings are common.
Context ∞ High leverage risk is a constant concern in the cryptocurrency derivatives market, with news frequently reporting on large-scale liquidations that occur during periods of extreme price volatility. Regulators worldwide are examining the risks posed by high leverage offerings on crypto exchanges, often considering restrictions to protect retail investors from substantial losses.