Leverage trading can be puzzling, particularly for beginners. But, before you experiment with it, you must first understand what it is and how it works. This article will focus on leverage trading in cryptocurrency markets, but much of the information is also applicable to traditional markets.
What is Leverage in Crypto Trading?
Leverage is a loan made by a stock exchange broker during margin trading to increase the amount of money available for use in the transaction.
It is also known as the amount of debt borrowed by a company to fund assets. It is commonly used by investors to increase their purchasing power in the market.
It amplifies your buying or selling power so you can trade with more capital than what you currently have in your wallet. Depending on the crypto exchange you trade on, you could borrow up to 100 times your account balance.
The amount of leverage is described as a ratio, such as 1:5 (5x), 1:10 (10x), or 1:20 (20x). It shows how many times your initial capital is multiplied. For example, imagine that you have $100 in your exchange account but want to open a position worth $1,000 in bitcoin (BTC). With a 10x leverage, your $100 will have the same buying power as $1,000.
How Leverage Works
Leverage is simply borrowed money that enables a trader to increase the size of his or her position as well as his or her market exposure, thereby increasing profitability.
You must first deposit funds into your trading account before you can borrow funds and begin trading with leverage.
The initial capital you provide is referred to as collateral. The collateral needed is determined by the leverage used and the total value of the position you wish to open (known as margin).
Say you want to invest $1,000 in Ethereum (ETH) with a 10x leverage. The margin required would be 1/10 of $1,000, meaning that you need to have $100 in your account as collateral for the borrowed funds. If you use a 20x leverage, your required margin would be even lower (1/20 of $1,000 = $50). But keep in mind that the higher the leverage, the higher the risks of getting liquidated.
In addition to the initial margin deposit, you must maintain a margin threshold for your trades. When the market moves against your position and the margin falls below the maintenance threshold, you will need to deposit more funds to avoid being liquidated. The maintenance margin is another name for the threshold.
Long and short positions can both benefit from leverage. Opening a long position implies that you believe the price of an asset will rise. In contrast, opening a short position implies that you believe the asset’s price will fall.
While this may appear to be regular spot trading, using leverage allows you to buy or sell assets based solely on your collateral and not on your capital. So, even if you don’t have an asset, you can still borrow it and sell (open a short position) if you think the market will go lower.
Best Crypto Leverage Trading Platforms
Here is a detailed list of the most familiar leverage trading cryptocurrency platforms used for buying and selling online assets using leverage. This assessment is based on several factors, including features, usage, leverage amount, fees, client assistance, and obscurity.
This platform has grown dramatically since its inception in 2017. With 1.4 million transactions per second, it is currently the world’s largest digital currency exchange platform.
It is the most popular trading app due to its simple user interface and smooth operation. The app will allow you to view profit and loss statements as well as trade history.
To use the Binance leverage trading facility, you must first complete the KYC, or identity verification process, and your home country must be excluded from Binance’s blacklist. Just be aware that Binance has recently discontinued providing margins on AUD, EUR, and GBP.
- Almost 200 different cryptocurrencies are used for trading
- Leading cryptocurrency exchange platform
- Facility to earn interest on cryptocurrency in the savings accounts of Binance
- Competitive deposit and withdrawal rates
- Able to Execute and manage orders
- Offers leverage up to 10 xs and 125 xs on spot transaction and derivatives trading, respectively.
This exchange platform (both long and short coins) was founded in 2018 and specializes in derivatives trading. Exchange platforms such as Binance futures and Bybit are ideal for gaining maximum liquidity for margin trading.
Furthermore, because of its simple user interface, beginners can easily use the ByBit mobile app and use its insurance funds to recover losses in the event of bankruptcy. It has over 2 million active users and is based in Singapore.
- Fastest developing a cryptocurrency exchange platform
- Offers 24/7 client support in multi-languages
- Zero server downtime
- Guarantees return of the total cost of financial loss in case of system error or server down
- Facilitates with a risk management tool
- Processing ability 100,000 transactions/second
- Stop loss and take profit order through a single click
If you’re searching for a cutting-edge crypto exchange platform, FTX is the place to be. This platform, which was founded in the middle of 2019, provides insurance funds and an exceptional amount of liquidity to its users. Residents of the United States must use FTX.
FTX is not available to residents of the United States. FTX, which has a three-tier liquidity rule, allows for a large number of marginal tokens. Keep up to date on all borrowing rates, as they typically change every hour.
- Offers a large variety of tokens
- Can access at first without identity verification or KYC
- Facilitates withdrawal capacity up to $2,000 on day basis
- Pro-level user interface that is available both on mobile and desktop
- The facility of trading directly on index futures
- Available to both crypto and future trading
Leverage makes it possible to get started quickly with low initial investment and the potential for higher profits. Still, leverage combined with market volatility may cause liquidations to occur quickly, especially if you are trading with 100x leverage.
Before engaging in leveraged trading, always trade with caution and assess the risks. Never trade funds that you can’t afford to lose, especially when using leverage.