Key takeaways
- Leverage is the ratio of a position's value to the margin posted against it. It raises your exposure without raising your capital.
- Profit and loss are calculated on the whole position. At 5x, a 5% price move changes your margin by 25%, in either direction, before costs.
- The higher the leverage, the smaller the fall that triggers liquidation, the forced closing of a position. At 10x, a 10% fall would remove all the margin in theory.
- Fees and funding are charged on the full position, so they take a larger share of a small margin.
- Backpack's Dubai licence covers spot trading only. Leveraged perpetual futures are not available in the UAE, so the examples explain the mechanics.
For information only. Not investment advice. This guide explains how leverage works and does not tell you whether or how to trade. The figures are round numbers chosen for the arithmetic, not forecasts. Read the risk disclosure first.
Leverage in one paragraph
Leverage is the use of a small amount of your own money, called margin, to control a position worth much more. The ratio is written as a multiple. A position worth 10,000 USD held with 2,000 USD of margin is 5x leveraged, because 10,000 divided by 2,000 is five. You are not handed the other 8,000 USD as cash. In a perpetual futures contract you hold exposure to the price, and your margin stands behind any loss. The guide to perpetual futures explains the contract itself.
Why it cuts both ways
The market does not know how much margin you posted. A 5% fall in the price takes 5% off the position, which is 500.00 USD on a 10,000.00 USD position. Against 2,000.00 USD of margin that is a 25% loss. A 5% rise gives a 500.00 USD gain, which is 25% of the margin. The same multiplier applies to the good outcome and the bad one, and it applies before any fees. Leverage does not improve your odds of being right. It changes how much being right or wrong is worth.
The same move at different leverage
The table holds the position at 10,000.00 USD and varies only the margin. It ignores fees, funding and the maintenance margin, so it shows the arithmetic and not what a venue would do.
| Leverage | Margin, USD | 5% move, share of margin | 10% move, share of margin | Fall that removes all margin |
|---|---|---|---|---|
| 1x | 10,000.00 | 5% | 10% | 100% |
| 2x | 5,000.00 | 10% | 20% | 50% |
| 5x | 2,000.00 | 25% | 50% | 20% |
| 10x | 1,000.00 | 50% | 100% | 10% |
The last column is the lesson. The fall that wipes out the margin is the reciprocal of the leverage: one divided by 10 is 10%, one divided by 5 is 20%. Crypto prices can move by that much in a day, so a higher multiple leaves little room for an ordinary swing.
Leverage multiplies what a price move does to your margin. It does not change which way the price goes.
Liquidation comes before zero
The table shows a total loss at the fall in the last column, but a venue acts earlier. The maintenance margin is the minimum that must remain while a position is open. When the margin left falls below it, the venue closes the position, which is liquidation. The position is closed at the prices then available, which in a fast market can be worse than the price that triggered it. So the real distance to liquidation is shorter than the table suggests, and you cannot wait for the price to recover.
How margin is shared matters too. The glossary explains isolated margin, where a position can lose only the margin assigned to it, and cross margin, where positions can draw on the rest of the account. Know which applies before the order is sent.
Costs scale with the position, not the margin
Trading fees are charged on order value. Backpack's published tier 1 rates for perpetual futures, read on 6 October 2026, are 0.02% for makers and 0.05% for takers. The fee schedule lists the other tiers and is marked as subject to change. On a 10,000.00 USD position, a taker order costs 5.00 USD to open and 5.00 USD to close.
| Leverage | Margin, USD | Round-trip fees, USD | Fees as share of margin |
|---|---|---|---|
| 2x | 5,000.00 | 10.00 | 0.2% |
| 5x | 2,000.00 | 10.00 | 0.5% |
| 10x | 1,000.00 | 10.00 | 1.0% |
The fee in dollars is the same, but it is a larger part of a smaller margin. Funding, the payment between long and short traders on perpetual futures, is also charged on the full position and runs for as long as you hold it. See maker vs taker fees for how the two rates arise, and how trading fees eat returns for how they compound. The spread and slippage add cost on top, and on a leveraged position a small price difference counts for more.
Sizing by loss, not by leverage
Because a venue's maximum leverage is only a limit, a better starting point is the loss you can accept. Suppose you can accept losing 200.00 USD. If you place a stop at a price 5% below your entry, the position that loses 200.00 USD at that stop is worth 4,000.00 USD, because 5% of 4,000 is 200. At 5x that needs 800.00 USD of margin. This is arithmetic, not a recommendation, and a stop is not a guarantee: the price can gap past it, as the guide to market, limit and stop orders explains. Leverage then becomes a result of the sums and not a setting you choose first.
Leverage compared with spot
With spot trading you pay in full and own the asset. The most you can lose is what you paid, and there is no liquidation or funding. A leveraged position gives price exposure without ownership, and it can end against your wishes. The guide to spot vs derivatives trading sets the two side by side. Regulators have long treated leveraged retail products as higher risk: in 2018 ESMA, the European Securities and Markets Authority, restricted contracts for difference, a comparable leveraged product, to protect retail investors.
What this means in the UAE
In Dubai, Backpack is provided by Trek Labs Ltd FZE, licensed by the Virtual Assets Regulatory Authority (VARA) for Exchange Services, spot trading only, licence no. VL/23/07/001. Backpack's licence disclosure says the licence does not cover futures or margin trading, so leveraged perpetual futures are not available to clients in the UAE. In the EU, perpetual futures are provided by Trek Labs Europe Ltd, licensed by CySEC as a Cyprus Investment Firm, licence no. 273/15. No single licence covers every Backpack product in every country. See the companies behind Backpack for who provides what, and the guide to how a crypto exchange works for the wider picture.
Five checks before using leverage anywhere
- Confirm the product is offered to you. Availability depends on where you live and which company serves you.
- Work out the liquidation distance. Divide one by the leverage as a first estimate, then allow for the maintenance margin.
- Add the costs. Fees on both sides, plus funding for the time you hold.
- Decide the loss you accept first. Size the position from that figure.
- Use only money you can afford to lose. Not money for bills, and not borrowed money.
For general questions, the Backpack FAQ covers common queries, and the other Learn guides cover related topics.
Frequently asked questions
What does 10x leverage mean?
It means the position is worth ten times the margin you post. With 1,000 USD of margin, a 10x position is worth 10,000 USD. Profit and loss follow the full 10,000 USD, so a 10% fall in the price removes the whole 1,000 USD in theory, and in practice the position is liquidated before that point.
Does leverage increase profit?
It increases the profit or loss measured against your margin, not the market's move. A 5% rise gives a 25% gain on margin at 5x, before costs, and a 5% fall gives a 25% loss. Fees and funding apply to the full position, so they weigh more heavily on a small margin.
Can I lose more than I put in?
That depends on the venue, the product and local rules. On a position with its own margin, the loss is normally limited to that margin, but a fast market can close a position at a worse price than the trigger. Read the contract terms and the risk disclosure for how any shortfall is treated.
Is leverage the same as borrowing?
Not exactly. With perpetual futures you do not borrow the asset or take delivery; you hold a contract on its price and post margin against it. The effect is similar to borrowing, because exposure exceeds your capital, but the mechanics and the costs, such as funding, differ.
Is leveraged trading available in the UAE through Backpack?
No. Backpack's Dubai licence, held by Trek Labs Ltd FZE under VARA, covers spot trading only. Perpetual futures, the leveraged product described here, are not available to UAE clients. The examples explain the mechanics and are not an offer.
How much leverage is safe?
No level is safe in itself. The higher the leverage, the smaller the price move that closes the position. A more useful question is how much you can afford to lose, then work back to a position size. A venue's maximum leverage is a limit, not a recommendation.
Sources
- Backpack, Trading Fees, support site. Tier values as recorded on the Backpack fee schedule, read 6 October 2026. The article is marked "SUBJECT TO CHANGE". It was not re-read for this guide on 24 October 2026.
- Backpack, VARA License Information, support site, as read for the perpetual futures guide on 12 October 2026. It was not re-read for this guide.
- Virtual Assets Regulatory Authority, public register of licences, the register cited in the footer for licence no. VL/23/07/001. The entry was not re-read for this guide.
- ESMA, ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors, 27 March 2018, as read for the perpetual futures guide on 12 October 2026. It was not re-read for this guide.