Leverage lets you control how much margin you put up for a given position size.
Position size (notional) is what drives your profit and loss in USDT
Leverage mainly changes how much margin is required, which changes your ROI and your liquidation risk
Quick definitions
Notional (position value) = position size x entry price
Initial margin (margin used) = notional / leverage
Unrealized PnL (uPnL) depends on price movement and position size, not on leverage
How leverage affects uPnL
Leverage does not change uPnL for the same position size and the same price move.
If you buy 1 BTC and price goes up by $100, your uPnL is +$100 whether you used 2x or 20x
The difference is how much margin you used to hold that position
How leverage affects ROI
ROI is uPnL measured relative to the margin you used.
ROI = uPnL / initial margin
Higher leverage uses less margin, so the same uPnL becomes a larger ROI. Lower leverage uses more margin, so the same uPnL becomes a smaller ROI.
Examples
These examples ignore fees and funding to keep the math simple.
Example 1 - Same uPnL, different ROI (long)
You open a long worth 3,000 USDT notional.
10x leverage
Initial margin = 3,000 / 10 = 300 USDT
5x leverage
Initial margin = 3,000 / 5 = 600 USDT
If price moves in your favor and uPnL is +30 USDT:
ROI at 10x = 30 / 300 = 10%
ROI at 5x = 30 / 600 = 5%
Same uPnL, different ROI because the margin used is different.
Example 2 - Losses work the same way (and feel bigger on high leverage)
Same position: 3,000 USDT notional.
If uPnL becomes -30 USDT:
ROI at 10x = -30 / 300 = -10%
ROI at 5x = -30 / 600 = -5%
Example 3 - Short position behaves the same
You open a short worth 2,000 USDT notional.
20x leverage
Initial margin = 2,000 / 20 = 100 USDT
If price drops and uPnL is +20 USDT:
ROI = 20 / 100 = 20%
If price rises and uPnL is -20 USDT:
ROI = -20 / 100 = -20%