Cryptocurrency has become a popular investment option among traders in recent years – but how can market movers make the most of them?
Investing in crypto leverage may increase investors’ overall purchasing power, which can increase their profits and improve trading performance.
Including what it is, how it works, and how to minimize the risks involved, this guide explains everything you need to know about Crypto Leverage Trading.
What is Crypto Leverage?
Investment leverage is the technique of paying less than the full amount of an investment in order to increase exposure to the market.
Traders can increase their position with borrowed funds beyond what they would be able to do with just their cash balance otherwise.
Crypto market traders and traditional traders use margin trading to maximize profits. Margin trading is similar to traditional trading.
The downside of Bitcoin Leverage Trading is that it carries a high level of risk and can result in significant losses. It is not advised for beginners or less experienced traders until they understand the risks involved.
How to Leverage Trade Crypto
Margin trading crypto allows traders to access larger amounts of capital since investors can contribute a percentage of the overall order value, which is where leverage comes into play.
For every $1 in a trader’s account, a broker offering 1:100 leverage for bitcoin will allow them to control an additional $100 worth of the virtual currency.
Despite the fact that leverage trading crypto entails a much larger risk than traditional trading, it offers the potential to magnify profits in the future, even if the risk is high.
It is possible to open a $100k position with 1000 bitcoins (with a 1:100 leverage), and if it moves into a 1% profit, the investor will make $100k. The gain on the same $100,000 investment, however, would be 1% without leverage.
Managing Risk
Crypto leverage can provide high returns, but it is also a very high-risk investment. The potential for loss is significant, especially when prices move in the wrong direction.
As a trader’s exposure to the market increases, losses associated with the trade of bitcoins, ethereums, or any other type of digital currency can be devastating to the trader’s portfolio as their exposure increases.
The loss of even a small amount of money in the market will result in a serious and expensive loss of capital. Margin trading differs from regular trading in that a slight drop in the market price can be amplified. The following are some ways to protect yourself against such losses.
Responsible Trading
There’s no doubt this is an obvious point, but it’s important – yet often ignored – to remember. It is imperative for investors to be prepared to exit the crypto market when the price drops, especially when trading on margins. As a result, they should never invest more than they can afford to lose.
Loss Limit
By setting a price at which a stock can be purchased or sold, also called a Stop Price, investors are able to protect their profits. When a stop order reaches the price mark, it becomes a market order and is typically executed as soon as possible. Stop losses work by specifying a certain price at which the stock can be bought or sold.
Protection against negative balances
Even if the market moves rapidly or gaps, traders can protect themselves from major crypto leverage losses by ensuring that their outstanding account balance doesn’t exceed their negative balance protection. An account will not go into a negative balance even if the price direction changes.
Take Profit
In a similar way to a stop loss, traders close their positions when their profits reach a certain level or amount. Due to the volatility of the crypto market, it is essential to trigger a sensible sale point before any downturn occurs, for the same reasons as explained in relation to Stop Loss.