Leverage Crypto Trading: How Does It Work?

If you’re looking to get into leverage trading, we recommend you start with a healthy dose of trading education. Only after going through some serious educational material and having worked with some demo accounts, should you consider leverage trading. Leverage cryptocurrency trading improves your buying and selling capacity by allowing you to operate with more capital than what you have. Nonetheless, the crypto market is highly volatile, and high leverage can cause liquidation risks. Therefore, always trade with caution and conduct a thorough technical analysis of an asset before leveraging it.

These are the two essential leverage calculations that every investor needs to know before getting started. Let’s go through the real benefits and drawbacks of investing in cryptocurrencies with increased buying power, after all, there are two sides to this coin. Depending on how you view the markets and your investment approach you will have different benefits from using leverage. Now, simply listing all the pros and cons without explanation will do not be good, so for each point, I have added a small description to let you know how I see these good and bad aspects. Trading with leverage is most practical for investors aware of the significant dangers involved.

What is Leverage Trading?

Lenders benefit from lending to traders who need it because they receive interest earned from the loan. Leverage plays an important role in strategizing to maximize immediate edge profits and minimize losses for experienced traders. Cryptocurrency leverage trading can be highly rewarding if you understand leverage and margin.

• For instance, if an exchange is offering a 10x margin and you have $100 in your account.
• Because of that, American traders try to find alternative ways to access those platforms.
• Below are three risk management strategies to apply in leverage cryptocurrency trading for maximum returns.

Firstly, to put it simply, leverage is a position size multiplier. When I first learned about this, I thought leverage would be the golden ticket to infinite riches, superyachts and Lamborghinis. Leverage trading crypto is legal in the USA and many other parts of the world but some nations have different regulations that brokers need to abide by to promote their services legally. The word cryptocurrency is currently mentioned practically everywhere in the financial world. Crypto is a digital currency that uses sophisticated encryption to protect itself from any form of falsification or so-called double-spending. Its vital component is blockchain technology, a decentralized ledger maintained by a distributed global network.

Are crypto investments profitable?

The vast trading volumes in the crypto space have caused some traders to fear missing out on possible huge profits from trading cryptocurrencies. This fear has even led some traders to resort to borrowing funds from brokers to increase their buying power in hopes of amplifying gains. Margin is the funds borrowed from the broker used to purchase digital assets. Leverage trading is a tool that allows you to trade with a lower initial investment, multiplying both profits and losses, so there is a high degree of risk involved.

• Binance Margin supports 600+ trading pairs, including some trading pairs that are not commonly offered.
• Aside from the margin deposit, you need to set a margin threshold, also referred to as the maintenance margin.
• BitMEX is a cryptocurrency exchange and derivatives trading platform founded in 2014 and headquartered in Seychelles.
• Therefore, it’s essential to find exchanges that support leveraged trading and operate in the US.
• Gaining experience in predicting how much an asset is likely to move up or down and practicing using leverage increases your chances of successful trading.

However, leverage trading involves borrowing more credit from the platform in order to amplify the size of your trading position. Experienced crypto traders might consider using leverage if they want to build their trading position sizes and maximize profits. We will use another leverage trading crypto example to demonstrate this point.

When you understand your potential losses

The first option has grown in importance recently because it requires less financial investment and allows traders to bet on cryptocurrency price changes without directly purchasing them. Founded in July 2011 and based in the USA (California), Kraken is one of the oldest cryptocurrency trading platforms in the world. The fact that Kraken has never been hacked makes this exchange one of the most secure in the business.

• However, if the price of BTC drops 20%, your position would be down $2,000.
• If you buy an asset because you believe the price would rise, this is termed ‘going long’ and when you sell it is called ‘going short’.
• If your trading plan goes as projected and you make a profit of $1,500, you will return the borrowed funds and interest to your broker and keep the balance.
• For instance, if you wanted to invest $5,000 in a leveraged trade at a ratio of 1-to-10, you would only need to invest $500 to open the position.
• Therefore, always trade with caution and conduct a thorough technical analysis of an asset before leveraging it.

Phemex is another renowned cryptocurrency exchange legal in the US. The exchange has over 2 million active users and a daily trading volume of over $2 billion. Besides, Phemex has 30+ integrated liquidity providers, so liquidity won’t be an issue for traders. The exchange sets itself apart from other exchanges by offering its customers a wide range of indices and leveraged tokens, which you can trade in the futures or options market. Launched in July 2017, Binance quickly became the world’s largest centralized crypto exchange, with more than $15 billion in daily trading volume.

Where can I trade BTC with leverage?

There are more than 30 cryptocurrencies that you can trade BTC, ETH, USD, or EUR. Some of them are ADA, ALGO, AAVE, BCH, ATOM, DOGE, XTZ, and many more. ECP certification has requirements of its own that you must adhere to related to your total – asset value. It’s very easy to fall into the rabbit hole of revenge trading in an attempt to win back all you’ve lost, and then some. However, if the market trend seems to be red, it might be better to wait it out and focus on safer options.

• CaptainAltcoin.com does not offer any sort of financial or investment advice.
• This would allow them to use the rest of their money in another place, such as trading another asset, staking, providing liquidity to decentralized exchanges (DEX), and investing in NFTs.
• Here, the position is leveraged 10 times which means that the position is 10 times larger than the margin.
• If you’d like some background knowledge before you take a deep dive into leverage, you can find our guides on how spot trading works and what margin trading is.
• Crypto exchanges offer a broad range of technical indicators and market tracking tools that can be essential in securing your position.

While it seems like a great idea to use leverage trading, you should know that it comes with high risks. In case if the market does not go as your expectations, you may have to face huge losses. In trading, one of the most popular terminologies is leverage trading. It exists in all types of markets, and it gives the investors an edge to earn extra profit.

Leverage

As a result, both your investing goals and your broker’s status are improved. Kraken supports margin trading, and traders can get up to 5x leverage on their positions. The United States of America is one of the leading countries in the world in terms of crypto holdings.

• Depending on how you view the markets and your investment approach you will have different benefits from using leverage.
• Admittedly, that’s a tiny amount compared to leverage in other countries, but better anything than nothing.
• During extreme volatility, the best available price might be pips away from your actual stop loss.
• Yes, leveraged trading carries substantial risk, especially for new traders.

It is also one of the most trusted cryptocurrency exchanges available out there. As far as the leverage limit is considered, the exchange offers a different leverage limit on your investments. Also, if you are a new user to the platform, you will not be able to exceed the 20x leverage within 60 days. This decision has been taken to safeguard its consumers from huge losses.

Calculating Leverage

BitDegree Learning Hub aims to uncover, simplify & share Web3 & cryptocurrency education with the masses. Join millions, easily discover and understand cryptocurrencies, price charts, top crypto exchanges & wallets in one place. While leverage is a tricky, high-risk tool, you can easily find resources to learn to use it without experiencing big losses – demo trading can help you with that. And if you want to master your spot trading skills first, we can help you out – you’ll find our spot trading guide here. This means that the perception of what is leverage trading in crypto can be negative – and the policies reflect it. Many countries have outright banned certain trading modes, such as margin.

And if you feel like I’ve missed anything important, feel free to share your own experience in the comment section below. There is a massive difference between what is – like if you’re going for margin, and how it works with perpetual contracts. Platforms that enable margin trading, such as Kraken, may limit the amount of leverage you can have – for example, no more than 5x or 10x leverage. Finally, since leverage trading is a risky business, I’ll offer you some tips and tricks that may help you keep your assets safe even when a trade goes south.

How trading crypto with leverage works

However, trading with leverage in this way is less accessible than regular spot trading, since it’s more regulated and is seen as riskier. Essentially, you can enter a virtual trading environment that allows you to open positions, track live data, and apply your strategies – without putting any real assets forward. It’s a risk-free way to practice your trading skills and gain more experience. Often, you’ll find demo crypto leverage trading for futures markets.

• Huobi is also one of the trusted platforms to buy and sell cryptocurrencies.
• If the price rises by 5%, your profit will also rise by 5%, which means you will have $105.
• Moreover, due to their decentralization, they are utilized for cross-border transactions and could be sent globally in a matter of minutes.
• Some of the cryptocurrencies that can be traded on ApeX Pro include Bitcoin (BTC), Ether (ETH), Ripple (XRP), Cosmos (ATOM), Dogecoin (DOGE), Blur (BLUR), and ApeX Token (APT).

Moreover, your account level and the amount you borrow significantly affect your interest rate. In margin trading, you should also retain a margin balance, commonly known as a maintenance margin, in your account to take care of losses. Additionally, you must deposit some funds to act as security collateral for the assets you borrow. Now that you know your risk per trade and your risk/reward ratio, you can determine the amount of money you should invest per trade.

Knowledge is Power.

The exponential growth of the trading volume in the crypto space has increased the demand for crypto exchanges offering leverage trading. This year has seen a new wave of exchanges specializing in crypto derivatives trading emerge. Before getting started with trading live assets, you should remember that margin trading can compound both your profits and losses. Learning technical analysis and risk-management strategies on a demo account before trading with real funds would be wise. The added buying power you get on the top crypto leverage trading platform comes from backup funds that the platform owner provides. These funds are not yours to keep and you will only have access to them while you have an active position open in the market.

In every scenario, never use leverage when trading with money you cannot afford to lose. Though the regulatory bodies in the US have banned a few cryptocurrency exchanges from operating in the country, leveraged trading is completely legal. Hence, you can do leveraged trading with confidence without worrying about legal issues. If you are in the US and want to trade cryptos in a hassle-free manner, we’ve got you covered. Here’s a list of eight cryptocurrency exchanges that offer leverage trading to US users. As for the USA, we must emphasize that trading margins are prohibited in the USA because this type of trade mainly refers to CFDs, and CFD trading is not allowed in the USA.