According to the analysis, trading fees on derivatives venues are charged as a percentage of notional value rather than the collateral backing the position. A trader depositing ₹1,000 and opening an unleveraged position pays fees on ₹1,000 of notional value. The same trader using 50 times leverage opens a ₹50,000 position and pays fees on ₹50,000 of notional value from the same deposit. At taker rates of a few basis points, a round trip on a ₹50,000 notional position costs a meaningful fraction of the ₹1,000 deposit before any market movement occurs.
The analysis reveals that leverage significantly compresses the distance between entry price and liquidation point. At 10 times leverage, approximately 10% adverse move eliminates the position. At 25 times leverage, roughly 4% does, while 50 times requires only 2% movement. At 100 times leverage, the margin for error falls below 1%, with industry glossary stating that 1% market movement can result in total capital loss. These figures assume smooth price behavior, which does not occur in stressed conditions.
When liquidation cannot be cleared in the market and backstop funds are exhausted, exchanges reduce positions on the profitable side to maintain book balance through auto-deleveraging. According to the report, venues rank candidates for forced closure by unrealised profit and effective leverage, closing the most profitable and most leveraged positions first. Many exchanges display each trader's rank as a live indicator on the interface, with high leverage raising position rank even when winning, as the venue's own risk engine treats high leverage as a liability marker.
The analysis notes that professionals use leverage far less than platforms permit, treating leverage as a cost input rather than a capability. Before entering a trade, they calculate fees on intended notional plus expected funding over holding period, comparing total costs against expected edge. Strategies requiring high leverage to be worth executing are identified as having too small an edge to survive their own costs. The report emphasizes that position sizing is the variable with largest effect on long-term outcomes, and high leverage removes ability to be early.
Despite the negative arithmetic, the analysis identifies three legitimate leverage applications: hedging existing spot exposure without selling underlying assets, defined-risk short-term positions sized so reaching invalidation point costs acceptable fraction of capital, and professional market making requiring inventory without disproportionate collateral. These cases share that leverage figure emerges from risk decision rather than driving it, contrasting with the interface-driven approach that chooses multiplier first and sizes position afterward.
