Basic mechanics and asymmetric risks.
| Concept | Explanation | |---|---| | Long position | Benefits when the asset rises; maximum loss on an unleveraged purchase is generally the invested amount. | | Short sale | Benefits when the asset falls; losses can be theoretically unlimited if price rises. | | Leverage | Increases exposure relative to capital and magnifies both gains and losses. | | Margin | Collateral supporting a leveraged position. | | Liquidation | Forced closing when collateral falls below required levels. |
Leverage changes the survival characteristics of a strategy. A directionally correct thesis can still lose money if volatility triggers liquidation before the expected move occurs.