> For the complete documentation index, see [llms.txt](https://openx.gitbook.io/openx-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://openx.gitbook.io/openx-docs/protocol-overview/leveraged-trading.md).

# Leveraged Trading

[**Overview**](#user-content-fn-1)[^1]

Leveraged trading is a core feature of the OpenX protocol, allowing investors to borrow the quoted currency used by OpenX to purchase assets. This feature enables traders to amplify their exposure to the underlying asset and potentially increase their returns.

**Calculation of Profit or Loss**

The leverage ratio is the ratio of the borrowed amount plus the amount paid by the trader to the amount paid by the trader. It determines the degree of leverage used in the trade. For example, if the leverage ratio is 5:1, the trader can borrow five times the amount they contribute to the trade.

**Leverage Ratio**

When engaging in leveraged trading, the profit or loss of the position is determined by the change in the price of the underlying asset multiplied by the leverage ratio. If the price of the asset rises, the investor earns a profit, which is magnified by the leverage ratio. Conversely, if the price falls, the investor incurs a loss, which is also amplified by the leverage ratio.

It is important to note that leveraged trading carries inherent risks. While it can potentially lead to higher returns, it also exposes traders to greater losses if the market moves against their position. Therefore, it is crucial for traders to carefully manage their risk and consider their risk tolerance before engaging in leveraged trading.

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