Leverage crypto trading is one of the most sought-after trading strategies and for all the great reasons. The trading method has always been a frequent method in the traditional trading market and is fast gaining ground in the crypto scene as well. The best thing about leverage trading is that it democratizes larger trading opportunities for all. Also known as margin trading, leverage trading allows aiming for bigger trading positions with the power of leverage aka borrowed fund support. This way, even traders with lean capital can open bigger trading positions and aspire for higher profits.
The post below offers a brief on the different aspects of leverage trading in the crypto scene.
Table of Contents
Leverage crypto trading- how does it work?
Well, leverage trading in crypto works the same way it works in traditional trading markets- just that the asset class is different in this case.
In leverage trading for crypto, you will borrow funds from crypto exchange to open a bigger trading position. It could be the case that you are expecting a bull run in the crypto scene in the coming days that can offer stellar returns if you can open a large trade. But, unfortunately, you are slightly tight on budget. In that case, you can always borrow funds with leverage trading so that you participate in high-roller trades.
Read more: https://multibank.io/page/leverage
The level of leverage might vary. Based on your trading goals, you can opt for 1x to 2x to 5x leverage or 10x-100x leverage.
The margin part
There is the concept of “margin” in leverage trading in crypto, as you see with leverage trading in the traditional trading market. You will have to make an initial deposit in the crypto exchange to open your account for leverage trading. Additionally, you will have to deposit a maintenance margin that you will need to maintain to keep the leverage trading account active.
Your leverage eligibility for leverage trading will be calculated based on how much margin you can allot. The leverage value will be calculated based on the margin you provided. So,, if you deposit $100 and opt for 10x leverage, the total trading capital will amount to $1,000.
What will happen if you are unable to maintain the margin? Well, in that case, the crypto will be compelled to close down your leverage trading account. However, before closing down, the trading platform will send a reminder to the trader asking him/her to refill the maintenance margin. This is officially termed as “margin call”.
Both long and short
Interestingly, leverage trading enables traders to make profit in both bullish and bearish markets. If you are expecting a bull market, you can opt for a long position. It’s the classic trading scene where you can buy when the prices are low and wait for the market to swing up to sell off at high prices.
If you are expecting the market to take a dip in the coming weeks or months, you can go for a short position with leverage trading. Also known as “shorting”, this strategy starts with the trader borrowing a crypto to sell it. Then, as the crypto scene takes a dip, the trader purchases the same crypto asset at a lower price and repays the lender (crypto exchange).
Tips for leverage trading
There is no doubt that leverage trading can be extremely profitable if the market swings in your favor. Also, since the trading method supports both short and long positions, it also offers hedge protection to your trading portfolio.
But, you should also take note of the fact that leverage trading could be extremely risky as well. If the market works in your favor, you will gain profit on leveraged trading capital- and that would lead to “magnified” returns or profits, But, if the market doesn’t swing in your favour, you will end up with “magnified” losses as well. Thus, here are some tips to keep in mind to ensure a safe and successful leverage trading experience.
Keep the margin low
Even if you can afford at the moment, please keep the margin low. The leverage, as mentioned above, will be calculated on the basis of the margin you provide. If you provide a higher margin, the total leveraged amount will be even bigger. It’s a bliss if you are making profit but the whole thing could turn to a disaster if you find yourself in losses.
Keep the leverage low
Even if your leverage trading platform is offering you up to 100x leverage, keep the leverage low. The logic is the same as discussed with the point about margin above. Higher leverage will bring you astronomical profits when the market is on high run. But, if you encounter losses with higher leverage, the entire margin will get liquidated- leaving you with a closed-out trading position.
Avoid overtrading
A lot of traders get this urge to keep on trading if they suddenly find a winning streak. But, the crypto market is extremely volatile and can plummet down in a matter of a few hours. In that case, you might end up losing more than you have earned with leverage trading. To avoid that, you would have to maintain a disciplined approach while trading. Set a bar that will serve as the boundary- once you will reach that mark you will stop all leverage trading activities for the time being. Don’t let the lure of even higher profits get the better of you.
Choose the coin wise
Your success with leverage trading also depends on your chosen coin. Look for cryptos that are guided by ambitious projects. Your chosen crypto must be backed by a highly knowledgeable and promising team, dynamic roadmap, realistic use case, and series of upgrades for the future. You need a coin that will sustain in future, despite the cut-throat competition in the crypto scene. Only a coin with a sustainable future can assure high surges in price and value in the near future.
Finally, you should also be careful about choosing the right crypto exchange for leverage trading. Your chosen exchange must allow choosing from a wide range of trading pairs and also support features to avoid big losses.
