Leverage is one of crypto trading’s major attractions. This ultimately provides the opportunity for traders to make profits from the market’s small price fluctuations.
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What is Leverage Trading?
Leverage works to provide a crypto trader with increased exposure by using a reserve, known as a margin.
Essentially, you’re putting down a fraction of your trade’s full value – and the rest is given by your broker.
The reason Bitcoin would be shorted by anyone is that the person believes the price will go down and if they were to long it means they believe bitcoin price will increase.
Example of using Leverage
When you open a regular lot size market trade worth £50,000, your broker will set aside £500 from your trading account to cover the transaction.
That would mean you’re 100:1 leveraged.
Basically, with just £500, you control £50,000. If the market moves 1% for you, your position would be worth £50,500 now.
To put it in perspective, you’ll have made a 1 percent profit, or just £500, if you had to come up with the whole £50,000.
But you only had £500 and made a £500 gain; which effectively means that on that small 1 percent market change you’ve only made a 100 percent profit.
Margin Call (REKT)
This is the worst call for crypto traders. If your trading capital is equal to or below your used margin, it happens.
Essentially, your broker will inform you that your margin for open trades is being used up and you need to deposit or free up more funds to keep your open position running.
The broker must close some or all of the open positions when a margin call happens to stop the portfolio from dropping into a negative balance.
Example of Margin Call
When you decide to open a trade with a margin requirement of £500, the margin you need will now be £500 and the margin you can use is £500.
Usable margin is the amount of money available for opening new trades and avoiding losses from trading.
If your trade losses, sadly of course, surpass your available £500 margin, you will receive a margin call.
How to use Leverage Trading Effectively?
Leverage can help traders increase productivity when trading crypto assets electronically when used effectively.
Good leverage use is entirely related to scale of trade and account capital, as well as risk tolerance.
Based on your risk tolerance, you must adjust the scale of your trade so as not to cause significant damage to your account equity.
Your scale of exchange determines your possible gain or loss in any given marketplace that you open up.
The optimum size of the transaction will always depend on the equity and risk tolerance of your account.
Simply divide the total face value of your open positions by your trading assets to measure the actual leverage you are actually using:
True Leverage = Total Transaction Cost / Total Capital Trading
Benefit of using Leverage
- The biggest benefit of margin trading is that when the market moves in the direction you expected, you can take advantage of the extra funds. Once the bitcoins are sold and the loan is repaid, the overall profit of the positions becomes significantly higher than a normal execution without leverage.
Disadvantages of using Leverage
- Leverage is a knife with double sides. Just as it amplifies your income on successful trades, you’re going to lose a lot on your failed trades.
- A losing streak can make a substantial dent in your trading assets on highly volatile markets.
Where to Leverage Trade Crypto?
There are plenty of exchanges and trading platforms on which you can shorten Bitcoin.
Some examples are (if you want the leverage to be short).
Bybit is one of Bitcoin’s biggest margin brokers at the moment. Many traders switched to them as the good reputations of the platform spread rapidly among the trader circles.
Bybit offers 100x leverage perpetual contracts, promises no overloads or network downtime, protects resources of users with the leading security features of the industry, provides 24/7 Live customer support and a direct line to their CEO on Twitter.
For new customers, Bybit provides a $10 welcome bonus just for sign-up and another $50 for those making at least 0.2 BTC first deposit.
Check out our Bybit Review for more information.
Margin trading is, of course, a useful tool for those who seek to increase the profits from their profitable trades.
When properly used, margin account leveraged trading can aid in both profitability and diversification of portfolios.
When you take a hands-off approach to your company, the only time leverage should never be used. Nevertheless, with proper management, resources can be used effectively and profitably.
Leverage has to be handled carefully like any sharp instrument – once you learn to do this, you have no reason to worry.
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