Leverage means trading with borrowed money on top of your own. With 10x leverage, for example, you control a position worth ISK 1,000,000 with only ISK 100,000 of your own money. Leverage multiplies your gains if the price moves your way, but it multiplies your losses just as much if it moves against you.
How does leverage work?
Many foreign exchangesCentralised exchange (CEX)A crypto exchange run by a company that carries out the trades and holds the crypto on behalf of its customers. offer leveraged trading, often through derivatives such as futures. You put up collateral, known as margin, and the exchange lends you the rest.
An example with ISK 100,000 and 10x leverage:
- If the price rises by 10%, you gain ISK 100,000. Your stake doubles.
- If the price falls by 10%, you lose ISK 100,000. Your whole stake is gone.
In practice it happens even sooner. When your margin is nearly used up, the exchange closes your position automatically. This is called liquidationLiquidationWhen a loan or leveraged position is closed automatically because the collateral or margin no longer covers the debt., and the money is gone even if the price recovers shortly afterwards.
Borrowing money to buy crypto, for example with an overdraft or a consumer loan, is also leverage. You have to repay the loan with interest, whatever happens to the price.
The risks
Crypto prices can move by 10% or more in a single day, so high leverage can wipe out a position within hours. That VolatilityVolatilityHow much and how quickly the price of an asset moves up and down. makes leveraged crypto trading especially risky.
Most people lose money this way. When ESMA, the EU's securities markets authority, looked at leveraged contracts for difference (CFDs) in 2018, it found that 74-89% of retail investor accounts typically lost money. Leveraged trading is also common bait in investment scamsInvestment scamA scam that promises big, safe returns on an investment, often in crypto, while the scammers simply take the money paid in. that promise quick profits. The temptation is often strongest when FOMOFOMOThe fear of missing out, which pushes people to buy in a hurry when prices rise fast, often close to the top. takes hold, which is exactly when the danger is greatest.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.