Does leverage affect profit and loss?

Conclusion: Leverage and Profit/Loss

Leverage does not directly affect profit and loss. The primary function of leverage is to determine the required initial margin when opening a position. Choosing higher leverage does not directly increase your profit.

Example:

User A opens a long position in BTCUSD worth $20,000. The following table (Figure 1) shows the relationship between leverage and initial margin:

Leverage	Position Value	Initial Margin Rate (1/Leverage)	Initial Margin Amount (BTCUSD)
1x	$20,000	(1/1) = 100%	$20,000 worth of BTC
2x	$20,000	(1/2) = 50%	$10,000 worth of BTC
5x	$20,000	(1/5) = 20%	$4,000 worth of BTC
10x	$20,000	(1/10) = 10%	$2,000 worth of BTC
50x	$20,000	(1/50) = 2%	$400 worth of BTC
100x	$20,000	(1/100) = 1%	$200 worth of BTC

Explanation:

• Position Value remains the same regardless of leverage.

• Leverage determines the initial margin rate. The higher the leverage, the lower the initial margin rate, which means the required initial margin is lower.

• The initial margin amount is calculated by multiplying the position value by the initial margin rate.

---

Example: Profit and Loss Calculation

User A considers closing the $20,000 position at $60,000. Assuming the average entry price is $55,000, the following table (Figure 2) shows the relationship between leverage, unrealized profit/loss, and profit/loss rate.

No matter the leverage used for the same position ($20,000), the unrealized profit or loss will be the same at the same exit price ($60,000), i.e., 0.03030303 BTC. Therefore, using higher leverage does not directly increase profit.

Unrealized profit and loss are calculated based on position size, entry price, and exit price.

• The larger the position, the higher the profit or loss.

• The greater the price difference between the entry and exit prices, the higher the profit or loss.

The unrealized profit/loss rate is calculated by dividing unrealized profit/loss by the initial margin amount (B / A).

• The higher the leverage, the lower the initial margin amount (A), and thus the higher the unrealized profit/loss rate.

Leverage	Position Value	Entry Price	Exit Price	Initial Margin (Based on $55,000 Entry Price) (A)	Unrealized PnL (Based on $60,000 Exit Price) (B)	Unrealized PnL Rate (B / A)
1x	$20,000	$55,000	$60,000	$20,000 / (55,000 * 1) = 0.36363636 BTC	0.03030303 BTC	8.33%
2x	$20,000	$55,000	$60,000	$20,000 / (55,000 * 2) = 0.18181818 BTC	0.03030303 BTC	16.66%
5x	$20,000	$55,000	$60,000	$20,000 / (55,000 * 5) = 0.07272727 BTC	0.03030303 BTC	41.66%
10x	$20,000	$55,000	$60,000	$20,000 / (55,000 * 10) = 0.03636363 BTC	0.03030303 BTC	83.33%
50x	$20,000	$55,000	$60,000	$20,000 / (55,000 * 50) = 0.00727272 BTC	0.03030303 BTC	416.66%
100x	$20,000	$55,000	$60,000	$20,000 / (55,000 * 100) = 0.00363636 BTC	0.03030303 BTC	1,000%

EasiCoin Team