Leverage
Perps can be traded on margin, with large positions created with relatively little user collateral. For example, if a trader with $30,000 believed Bitcoin would increase in value, they could put their entire portfolio into buying 1/2 of one BTC at $60,000. If Bitcoin increased by 10%, then their position and balance would increase by 10% as well, or a $3,000 profit.
However, the trader could instead buy 10x leveraged perpetual contracts with their $30,000. This would buy 5 BTC, or $300,000. Showing the same 10% increase, the user's position would rise 10% from $300,000 to $330,000 and the user's balance would double from $30,000 to $60,000, an 100% ROE.
Oversimplified, the user's return on equity, ROE, is equal to the levered amount, L, times the percent change, P:
ROE = L*P. Likewise, to find the user's final profit or loss, one can utilize the profit-net-loss PNL, is equal to the position size, S, times the ROE:
Only experienced traders should acquire leveraged positions because use of margin can increase gains on the way up, but also losses on the way down.
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