Leverage Multiplier Effect

The leverage multiplier effect describes how borrowed capital magnifies both the potential gains and losses of a trading position. By using a small amount of collateral to control a much larger position, the trader gains significant exposure to market movements.

However, this also means that even small percentage changes in the underlying asset price can lead to large percentage changes in the account's equity. The margin engine must strictly monitor this effect, as it is the primary driver of rapid liquidation cycles.

The multiplier is limited by the protocol's margin requirements to ensure that the risk of total account loss is managed. Understanding this effect is critical for any trader engaging in derivative markets.