In early October 2025, the cryptocurrency market was experiencing euphoria: bitcoin updated its all-time high above $125,000, and analysts vied with each other to promise a rally to $200,000. However, the night of October 11 put everything in its place. The price of the first cryptocurrency made a record daily swing of $20,000, and trading platforms forcibly closed positions worth $19 billion. The sector's market capitalization shrank by nearly $660 billion. This episode is a vivid illustration of the price traders pay for using borrowed funds.
The asymmetry of loss and recovery
Many underestimate the mathematics of losses. If an asset drops by 10%, a rise of 11.1% is needed to return to the original level. A 50% drop requires doubling the capital, and an 80% drawdown requires a fivefold increase. The problem is that the loss is calculated from the initial amount, while recovery is calculated from the remaining balance, which shrinks. With leverage, this asymmetry is amplified many times over. With 10x leverage, a 10% decline in quotes completely wipes out the collateral, and the exchange closes the position even earlier, taking into account fees and accrued interest.
The key difference between spot and margin is who controls the moment of fixing the result. In a spot trade, an asset can depreciate, but no one will sell it forcibly. A "paper" loss can be waited out until recovery. With leverage, the decision is made by the exchange's risk mechanism, and this often happens at the most inopportune moment.
Volatility — the hidden enemy
Even without liquidations, volatility "eats" capital. Consider an example: an asset falls by 10%, then rises by 11.1% and returns to its original price. A spot buyer gets their $100 back. A trader with 3x leverage after such fluctuations has only $93.3, and with 5x — $77.8. The formula r ≈ μ − σ²/2 explains this phenomenon: volatility (σ²) quadratically increases losses as leverage grows. The more turbulent the market and the longer the position is held, the greater the lag behind spot.
In February 2026, bitcoin's annualized volatility was about 81% — twice the 12-month average. This makes margin trading especially risky in current conditions.
The cost of time
Spot trading involves only a fee for buying and selling. With borrowed funds, costs accrue constantly, regardless of price movement. Exchanges charge interest on the loan, and perpetual futures have a funding rate calculated every eight hours. On Binance, the base rate is 0.03% per day, but it can rise depending on market imbalance. For long-term positions, these costs can eat up a significant portion of capital before the price even moves in the desired direction.
The hunt for "stops" and structural risks
October's "Black Saturday" also showed another aspect — vulnerability to "spikes." Retail traders' stop orders accumulate at predictable levels, and with low liquidity, they can be pushed through with a relatively small volume. This triggers a chain reaction where each closed position moves the price further. A spot position in such a situation is not subject to forced liquidation — the asset simply weathers the drawdown.
However, spot does not eliminate other risks. Buying at an all-time high can mean years of waiting for capital recovery. Research by the Bank for International Settlements shows that between 73% and 81% of retail investors in 95 countries over 2015–2022 ended up in the red. Even without leverage, choosing an unsuccessful asset or entry point can lead to losses.
The statistics are relentless
Empirical data confirms: leverage more often destroys capital than multiplies it. A study by Brazilian economists showed that out of 19,646 traders working with mini-futures, 97% ended the period in the red. An analysis of American households revealed that the most active traders earned 11.4% annually versus the market average of 17.9% — the difference was created by costs and trade frequency.
Systems instead of intuition
The solution to problems lies in automation and discipline. Pre-placed limit orders help avoid emotional decisions. Trading systems — from simple stop orders to algorithms — allow formalizing the process. However, even they do not cancel the mathematics: the cost of borrowed funds and the asymmetry of drawdowns remain.
My conclusion
Spot and leverage solve different problems. The former limits profit to the size of the deposit but gives control over time. The latter accelerates results but makes the trader dependent on market mechanisms. Given that the share of derivatives in total trading volume has reached 77.1%, most market participants clearly underestimate the risks. October's deleveraging with $19 billion in liquidations is just one reminder that the stakes in this game are higher than they seem. A sensible approach is to start with spot and use margin only after you have built and tested a system that actually works.