Cryptocurrency has emerged as a fervent investment avenue for an array of participants, spanning day traders, retail investors, and institutional players alike, drawn by its promise of substantial gains and its characteristic rollercoaster-like volatility. For those seeking to harness this volatility for profit, avenues such as trading on exchange platforms or under the aegis of authorized brokers offer enticing options. Yet, a risk-laden pathway also beckons, one that is not for the faint of heart: cryptocurrency leverage trading. Within the confines of this discourse, we shall delve into the mechanics of leverage trading and elucidate a roster of reputable cryptocurrency platforms that offer a springboard into the realm of crypto leverage trading.
Disclaimer: We want to emphasize that this is not financial advice. Cryptocurrencies operate in a volatile market, where values can drastically fluctuate in a blink of an eye. It is imperative to conduct thorough research and seek guidance from a qualified financial advisor before investing.
What is Leverage Trading in Crypto?
In straightforward terms, Margin Trading or Leverage Trading involves using borrowed funds to invest in cryptocurrency. If you're intrigued by cryptocurrency dealings, leverage trading offers an appealing avenue. It empowers you to borrow capital from brokers, elevating your purchasing potential and potentially yielding greater profits.
Leverage Trading in the cryptocurrency realm essentially furnishes investors with a mechanism to engage in spot transactions—buying and selling—by leveraging borrowed funds from brokers. Typically, these funds exceed investors' account balances, effectively augmenting their financial clout. Consequently, it's a means of optimizing gains by bolstering purchasing capability. What's noteworthy is that even with a modest initial sum, this type of trading becomes accessible—a luxury seldom available in conventional trading. To illustrate, consider a scenario where a trader initiates leverage trading with a $100 margin, enabling them to trade with up to 10 times that amount, totaling a $10,000 margin size. It's important, however, to bear in mind that Leverage Trading is fraught with substantial risks, potentially culminating in substantial losses. Thus, beginners are generally cautioned against diving into this domain, as seasoned traders themselves often encounter substantial setbacks. Nonetheless, for adept practitioners of regular trading, the option to dabble in smaller margin amounts for crypto leverage trading exists.
How Leverage Trading Works
Operating within a margin trading account entails committing a percentage of the overall order value. This is where the concept of leverage trading comes into play. Margin serves as the foundation for leverage, enabling traders to amplify their trading capacity. Leverage essentially grants you augmented buying potential by facilitating the opening of larger positions than what your account balance would typically allow. The representation of leverage typically assumes the form of a ratio, such as 1:10, 1:20, or 1:30.
Given the inherent volatility of cryptocurrencies, which provides the opportunity to capitalize on substantial and rapid fluctuations, the utilization of cryptocurrency Contracts for Difference (CFDs) has gained prominence within trade markets, including platforms like eToro. Margin trading serves as the driving force behind both long and short positions within cryptocurrency CFDs. In the realm of cryptocurrency margin trading, you have the flexibility to acquire crypto assets if you anticipate an upward trajectory in their value, thereby profiting from the resultant price surge. Conversely, you can opt to sell crypto assets if you anticipate a decline in value, capitalizing on the ensuing price descent. This strategic maneuvering is made possible due to the dynamic nature of leverage and margin trading.
Ways to Manage Risk when Leverage Trading
Margin trading can amplify your gains, but it can also amplify your losses if the trades don’t go your way. This is what makes margin trading so risky. However, there are some measures you can put in place to mitigate the level of risk in your margin trading strategy. Let’s take a look at some of the measures you can include in your trading strategy.
A stop loss is a risk management tool designed to close a trade at a specific price in the event that the market turns on you by moving in the direction opposite your trade. It is a really helpful way to ensure that you know exactly how much money you risk losing if the trade fails.
Don’t Risk What You Can’t Lose
No matter how successful your trades have been, margin trading with cryptocurrencies can go against you extremely quickly. Therefore it is vital that you do not trade with more money than you are comfortable losing. Generally speaking, risking more than 5% of your account can be troubling. It may be best to invest an amount that you could pay off should your investments go south.
This can be thought of as the opposite of a stop loss. You can set a take-profit order to close out your position when the profits for the trade hit a specific amount or percentage. Since cryptocurrency is so volatile, it could be a wise move to take your profits as soon as possible and before the cryptocurrency market turns against you.
Negative Balance Protection
If, for any reason, market conditions cause your equity to go negative, some trading platforms will absorb the loss and reset your equity to zero.
Top Exchanges for Cryptocurrency Leverage Trading
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.
Binance is the largest cryptocurrency exchange in the world when it comes to daily trading volume. Available online and via a mobile application, Binance offers cryptocurrency traders an advanced suite of trading tools. One of these trading tools is the ability to crypto leverage trade. All the trader needs to do to get started with crypto leverage trading on Binance is to complete their KYC which includes identity verification. Most importantly, your country of residence must be excluded from Binance’s blacklist. One thing to be aware of is that Binance has stopped providing margin trading 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 on 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.
Established in 2018, this exchange platform ( both long and short coins) is specialized in derivatives trading. To access maximum liquidity for margin trading, exchange platforms like Binance Futures and Bybit are ideal. Moreover, beginners can easily use the ByBit mobile app for its smooth user interface and use its insurance funds to get over losses in case of bankruptcy. Based in Singapore, it has over 2 million active users.
- Fastest developing a cryptocurrency exchange platform
- Offers 24/7 client support in multi-languages
- Allows leverage up to 100x
- 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
Cryptocurrency Margin Trading Strategies
As is the case with regular trading, there are several leverage trading strategies that a cryptocurrency leverage trader can employ.
Gradually Increase Trade Size
This strategy is especially beneficial for traders that are new to margin/leverage trading. In this strategy, the trader starts with small positions and increases their leverage as they gain more experience. This can also be an effective way to limit risk when starting out.
Set Clearly-Defined Goals and Minimize Risk
Having a sensible risk management strategy and clearly defined profit goals can greatly assist you in avoiding emotional decision-making that may result in a loss.
Divide Your Positions
Another method for minimizing risk is to divide your positions into separate portions, for example, you could set a series of taking profit orders to capture your profits incrementally, rather than all at once when your single take profit is reached.
Limit the Time Periods of Your Trades
Consider limiting the time that you hold any one position in order to limit the risk of unforeseen price drops and long-term market corrections.
Crypto leverage/margin trading is a method of trading that can be used to achieve significantly higher gains. There are multiple strategies that can be used in cryptocurrency leverage trading that can help minimize the risk and maximize gains. These strategies include dividing positions, limiting the time periods of trades, etc. Although margin/leverage trading has the potential for large gains, there is also the risk of the market going against the trader, which could lead to significant losses. This is what makes leverage/margin trading, especially in the cryptocurrency market, so risky. To mitigate the risk of the market turning against them, traders can use several risk management strategies such as setting stop losses for all of their trades, taking profits, and most importantly, only risk money that they are comfortable losing.