What is leverage trading?

What is leverage trading in crypto?

How does leverage trading in crypto work?

Why use leverage to trade crypto?

What Are The Differences Between Levered and Unlevered Trading?

What are the perks and cons?

Among the advantages are

  • The possibility of achieving high returns with a small investment. The use of leverage allows you to control a much more prominent position than the amount of money you have deposited in your account.
  • The ability to open positions with a small percentage of the total value of the trade. This is especially useful when trading volatile assets such as cryptocurrencies, where price movements can be extreme.
  • The opportunity to short assets. When you short an asset, you bet the price will fall. This can be done with leverage, which allows you to magnify your profits if the price does indeed fall.
  • Access to markets that would otherwise be unavailable. Some markets, such as cryptocurrency futures, can only be traded with leverage.
  • Increased buying power. When you use leverage, you essentially borrow money from the broker or exchange. This allows you to buy more of the asset than you could with the amount of money you have deposited in your account.

On the other hand, some disadvantages can be

  • The potential for significant losses. If the price of the asset moves against you, your losses will be magnified by the amount of leverage you are using.
  • The need for margin. When you trade with leverage, you are required to maintain a certain amount of money in your account (margin) in order to open and maintain your position.
  • The possibility of being forced to close your position. If the price of the asset moves against you and your losses reach a certain level, your broker may close your position in order to limit their own risk.
  • The potential for high fees. Some brokers or exchanges charge higher fees for trades that are made with leverage.
  • The need for discipline. When using leverage, it is crucial to be disciplined in your trading. This means sticking to your plan and not letting emotions influence your decisions.

How to manage risks with leveraged trading?

  • Determine your risk tolerance: Before you begin trading with leverage, it is important to have a clear understanding of how much risk you are willing to take on.
  • Set stop-loss orders: A stop-loss order is an order that will automatically close your position if the price falls below a certain level. This can help limit your losses if the market moves against you.
  • Use take-profit orders: A take-profit order is an order that will automatically close your position if the price reaches a certain level. This can help lock in profits if the market moves in your favour.
  • Manage your position size: Position size is the number of contracts or shares that you buy or sell. When trading with leverage, it is important to be mindful of your position size in order to avoid taking on too much risk.
  • Monitor your margin: Margin is the amount of money that you need to deposit in order to trade with leverage. It is important to monitor your margin levels and ensure you have enough funds to cover potential losses.

Conclusions

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store