What is Leverage Crypto Trading?
Leverage Trading is a gift for crypto traders who cannot afford higher capital to invest. It is also known as margin trading and it allows crypto traders to open market positions that are much larger than the actual capital.
Traders need to invest only a certain percentage of the position, which is impacted by multiple factors and changes between intermediaries and platforms. Leverage trading is the most popular trading option among crypto traders and brokers these days.
Leverage and Margin Trading
- Leverage is calculated as the ratio between the position and the investment needed for purchasing a crypto asset.
- Despite putting up all the money by themselves, traders opt for leverage (like 2X or 10X) while buying cryptos.
- Margin Trading is a method where crypto traders buy digital assets using funds provided by a trusted third party.
- Margin is the percentage of the position needed. Margin accounts provide traders with access to greater capital.
Why Trade with Leverage?
Trading with leverage has a lot of advantages. As a matter of fact, it has become a common tool in the crypto trading realm. Let’s see some of the advantages here:
- Leverage Trading minimizes the initial funds a trader has to invest.
- Instead of paying the full amount to buy a cryptocurrency, the trader has to pay only a small amount of it.
- Eg: If a coin’s value is $1000 at the time of trading and the trader has only$100, he can use a 10X leverage
- Even traders with less capital can buy high-priced coins.
- Some cryptocurrencies are available at cheaper prices. It means that all traders can buy them easily.
- Whereas, some cryptos are highly expensive based on their mining frequency and market demand.
- A trader can use leverage and enjoy the fluctuations in the price of those expensive cryptos.
Things to remember,
- Though leverage trading offers many advantages like having less capital involved, it also has its very own down sides such as loss risk.
- When things go according to plan and luck favors, a trader can gain a lot of funds than his investment and vice versa.
- Since the crypto market is a volatile one, even experienced traders find difficulties in executing their strategies.
- So, as much as there are chances for gaining profits, there are equal chances for a trader to lose all his funds (sometimes it can become even worse).
- A piece of advice to all traders is that, better keep track of all opened positions, and enable stop loss and other market orders in order to prevent huge losses.
Leverage Trading Explained with NexFolio
Let’s say you want to buy ten similar cryptos, each priced at $200. However, you can afford to buy only one currency. So now, you visit the NexFolio platform and opt for 10X leverage. The 10X leverage means that you can now open a trade for $2000 (technically, you are now the temporary owner of ten cryptos).
After some time, the price of the crypto that you’ve bought moves up by 10%. So, you have now earned a total profit of 100% ($2000 + 10% or $2200). Now, you must return the $1800 to the platform and the remaining amount is your capital and profits combined. Imagine that without the leverage trading functionality, the profits you earn would be less than half.
But wait, the game hasn’t ended yet. Leverage trading is profitable until the market movement is uptrend. What if it goes downtrend like the currency’s price going down to $100? Your total funds are now $1000 and you have to pay the platform $1800. The loss is for you. Seems risky right? That’s why we advise you to use leverage trading at your own risk.
Leverage is often expressed in the representations like 2X, 3X, 10X, 50X, and more. The maximum leverage in the crypto market is offered by BitMEX exchange platform and it is 100X.
The dynamic rise in the values of cryptocurrencies in recent years has seeked the attention of many potential novice traders. Undoubtedly, due to this, the ‘fear of missing out on holdings’ is overpowering. Leverage trading, as an alternate method is now the savior of many crypto traders. It offers fewer risks and more opportunities for crypto enthusiasts.
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