Leveraged trading, or margin trading is the activity of holding a long/short position on an asset, whilst increasing exposure to its price, by using funds borrowed from the broker as collateral. In DeFi, the role of the broker is performed by autonomous market makers (AMMs) such as those in liquidity pools. This type of trading can be undertaken on various decentralized exchanges (DEX’s). The borrowing component of leverage trading is facilitated by lending platforms like Aave and Compound.
DeFi trading occurs in a trust-minimized setting. In other words, at the core of DeFi is the attempt to remove centralized 3rd parties and supplant them with smart-contract-based peer-to-peer markets. These markets are governed by open-source protocols that have implemented smart-contracts and automation in place of 3rd parties that might otherwise have an unfair advantage in the market.