Leverage Trading Crypto: Worth It?
Leverage Trading Crypto: Worth It?
Cryptocurrency is a hot investment amongst day traders, retail investors, and institutional investors due to its associated high potential for gains and extreme volatility. Anyone looking to profit from cryptocurrency’s high volatility can do so by trading cryptocurrency on exchange platforms or trading cryptocurrency through authorized brokers. However, there is another, very risky, the way that cryptocurrency traders can profit from the extreme volatility: cryptocurrency leverage trading. In this article, we will take a look at what leverage trading is and explore some reputable cryptocurrency platforms that you can use to get started with crypto leverage trading.
What Is Leverage Trading in Crypto?
In simple words, Margin Trading or Leverage Trading refers to the usage of borrowed capital for investing in cryptocurrency. If you are interested in dealing with cryptocurrency, leverage trading is an ideal option for you. It helps you borrow capital from brokers to raise your buying capacity and offer higher profits.
Leverage Trading in Crypto denotes a tool that allows investors to make spot transactions (purchase and sale) with the help of borrowed capital from brokers. Usually, these funds exceed the account balance of the investors. Therefore, it is a perfect way of maximizing profits by increasing purchasing ability. The best part about this trading is that the investor can opt for this trading with a small amount of money. For general trading, you can’t even imagine that! If you take for instance, a trader who enters a leverage trading with a $100 margin can trade up to 10 x margins, i.e., $10,000 margin size. However, you should note that Leverage Trading is subject to high risks, which can eventually lead to huge losses. That’s why beginners are advised not to opt for this type of trading, as many experienced traders undergo big losses. However, experts in regular trading can invest in smaller amounts for margin trading in crypto.
How Leverage Trading Works
With a margin trading account, you put in a percentage of the total order value. This is where leverage trading comes in. Traders use margin to create leverage. Leverage gives you increased buying power by allowing you to open larger positions than you would ordinarily be able to if you could only use the money in your account. You will usually see leverage described as a ratio, such as 1:10, 1:20, or 1:30.
Because of crypto’s volatility, allowing people to potentially profit from large and fast swings, cryptocurrency CFDs have become a popular strategy on trade markets such as eToro’s, since margin trading can be used to open both long and short positions. With cryptocurrency margin trading, you can buy crypto if you think the value is going to go up (and profit from the price rising) or sell it if you think it is on the way down (and profit from the price falling).
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
If you want a cutting-edge crypto exchange platform, FTX is the ultimate destination for you. Formed in mid-2019, this particular platform allows insurance funds and an exceptional amount of liquidity for its users. US residents need to use FTX.US as FTX is not applicable to residents of the USA. Featured with a 3 tier liquidity rule, FTX allows numbers of marginal tokens. Keep yourself updated with all borrowing rates, as this usually alters every single hour.
- Offers a large variety of leverage 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
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.
Leverage Trading Crypto: Conclusion
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.
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