All About Crypto Leverage Trading

Crypto leverage trading entails making trades using borrowed money. This trading can step up your selling/buying potential, making it easier to trade massive amounts. Although leveraged trading can boost your potential earnings, it’s also susceptible to higher risks, mainly in the volatile cryptocurrency field. Therefore, remain cautious whenever carrying out crypto leverage trading. You can experience massive losses if this market shifts against your expected position.

All About Crypto Leverage Trading

You’re likely to get a challenge starting crypto leverage trading, especially if you’re a beginner. But before trying out leverage, it’s indispensable to learn what it entails and how the overall process functions. This revealing post will focus on crypto leverage trading to help you get started quickly.

All About Crypto Leverage Trading

Crypto Leverage Trading Definition

Leverage involves trading crypto coins and other digital assets using borrowed money. Leverage trading boosts your selling/buying potential to allow you to complete trades using massive amounts than what you hold in your current wallet. You can borrow even a hundred times your current account balance based on the crypto platform you go with.

The leverage capital is stated or expressed as a ratio – which illustrates the number of times your actual capital is amplified. Examples include 20x or 1:20, 10x or 1:10, 5x or 1:5, and more. Now, let’s look at another example. Imagine that your exchange wallet has only $100, but you aim to open a point worth 1000 USD in bitcoin. Here, your100 USD account balance will feature the same purchasing potential as 1000 USD if you go for a 10x leverage.

Also, note that you can apply leverage to exchange various cryptocurrencies. The famous examples of leverage trading cases include futures contracts, margin trading, and leverage tokens. But how does this trading operate? Let’s see!

How Crypto Leverage Trading Works

All About Crypto Leverage Trading

Before borrowing money and investing in leverage trading, you must update your exchange account with cash. The actual capital you deposit to this account is what’s identified as collateral. The required collateral varies depending on your preferred leverage and your position’s total value specified as margin.

For instance, if you aim to invest 1000 USD in Ethereum with a 10x or 1:10 leverage, you need 1/10 of the 1000 USD. Therefore, your exchange account must have collateral of 100 USD for the borrowed money. Expect a lower margin (50 USD) if you go for 20x or 1:20 leverage  – 1/20 of 1000 USD. However, remember that you increase your risks of being liquidated if you also increase the leverage higher.

Besides the actual margin deposit, you’re also required to keep a margin point/threshold for your crypto trades. Whenever the crypto field goes against your position/point, and the margin becomes lower than the margin threshold, you’ll need to upload more capital into your exchange account to avoid getting liquidated. This threshold also features another as the maintenance margin.

Note that you can apply leverage to the “short position” and “long position.” Opening long positions mean you anticipate the asset’s value to increase. On the other hand, opening short positions means predicting the asset’s value to reduce. While you can see this as the typical spot trading case, leverage trading makes it easy to sell/buy a digital asset based primarily on your collateral and not on your investment holdings. Therefore, even if you have zero ‘assets,’ you can still hire and sell them (open short positions) if you anticipate the market to go lower.

Final Thoughts

Investors use leverage mainly to step up their potential profits and position. However, as discussed above, leveraged trading can also result in significantly higher losses.

Investors also use leverage mainly to boost their capital liquidity. For example, instead of sticking with a leveraged position of 1:2 or 2x on one exchange, traders can maintain this position ‘size’ with lower collateral using 4x or 1:4 leverage. This strategy allows them to maximize the other money in a different asset, such as trading NFTs, investing in another asset, etc.

Finally, you can trade cryptos using leverage on various cryptocurrency platforms such as PrimeXBT. This platform allows you to get started quickly with lower actual investment capital and the capability to generate higher profits. But remember to avoid trading funds that you can’t wish to lose, mainly when using leverage.

Charlotte Johnson
Charlotte Johnson

The exact amount of Enthusiasm & commitment for art makes Charlotte Johnson creatively energetic for what she does. The Artistic finesses flowing in her nerves don't permit her to sit and create the ordinary that's why she consistently put the full dosage of potency to construct something monumental & worth perceiving. The point that makes her distinguishable is her capability to accept the compliments & comments both with equal excitement and Respect.

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