Leverage

Definition ∞ Leverage is a trading technique that allows investors to control a larger position in an asset with a smaller amount of capital. It amplifies both potential profits and losses, as it involves borrowing funds to increase exposure. This practice is common in derivatives markets, including those for digital assets.
Context ∞ The use of leverage in digital asset trading is a subject of significant debate, particularly concerning its role in market volatility and risk amplification. Exchanges offering high leverage ratios attract traders seeking to maximize potential gains, but also expose them to heightened liquidation risks. Regulatory bodies are increasingly scrutinizing these practices, seeking to implement measures that protect retail investors from excessive risk exposure while acknowledging the utility of leverage for sophisticated market participants.