Understanding leverage and liquidation
Leverage is one of the most powerful features of perpetual futures trading (perps) and understanding it also means understanding liquidation, the risk that comes with it. This guide contains a simple calculator for education purposes to help you understand possible trading outcomes. Always do your own research to understand your trading appetite and remember—the higher the leverage, the higher the chance of liquidation.
What is leverage?
Leverage is a multiplier on your capital. It’s a tool that lets you control a position larger than your margin (collateral). While powerful, it can be risky as both losses and profits are amplified.
Each perp contract in MetaMask supports different max leverage levels; you can view this in the available list of contracts to trade where the max leverage size is listed next to each token.
Example: If you open a position on ETH with 5x leverage and $500 margin, your position size becomes $2,500. While your exposure is multiplied, so is your profit and loss. A 5% move in ETH equals a 25% move on your margin. Use the calculator below to get a sense of potential profit and losses (not including other fees involved in actual perp trading and funding rates).
What is liquidation?
Liquidation occurs when your margin isn’t sufficient to keep your position open. At that point, the provider (Hyperliquid) automatically closes your trade to prevent your position from going negative.
While leverage allows you to control a larger position, adverse price swings can eat into your margin (collateral). The provider, Hyperliquid, sets a minimum “maintenance margin” you must hold relative to your position size. If losses reduce your margin below this level, your position is liquidated automatically so you don’t owe money. The max you lose is the margin you put up.
The higher the leverage, the higher the chance of liquidation
This is because crypto markets are volatile, and high leverage leaves very little price cushion. A 10x position has ~10% cushion; a 20x has ~5%; and 40x position has only ~2.5%. Use the calculator below to get a sense of potential profit and losses (not including other fees involved in actual perp trading and funding rates).
Leverage and liquidation calculator
This calculator uses simplified assumptions for learning purposes. The model assumes no fees, maintenance margin, or slippage. Real trading includes these factors that can affect actual outcomes.
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