What Is Leverage in Crypto Trading?
One of the most attractive features of crypto trading is the leverage it offers small investors. Crypto Leverage trading allows you to multiply the effect of your funds and therefore make profits as though you had more money than you possess.
With Crypto, the money you deposit with your crypto exchange is only a small percentage of the total value that you can trade. Your deposit is sometimes called a margin, and your account is called a margin account.
LBank allows you to effectively borrow funds for Leverage trading on the basis of the margin that you deposit. However, before trading with leverage, it’s important to understand what it entails and how it works.
What Is Leverage in Crypto Trading?
Leverage increases buying power by allowing you to open larger positions than you would ordinarily be able to if you could only use the money in your account.
For example, with leverage trading, you can invest $1000 in a crypto asset while you only have $100 as collateral in your wallet. In this context, the word ‘collateral’ means margin. So leverage is about maximizing and multiplying your margin funds. Top crypto exchanges, including LBank, offer up to 75x leverage.
Given the high volatility of the crypto market, both small and big investors can trade leverage on reputable exchanges such as LBank.
How does leveraged trading work?
As mentioned earlier, leverage in crypto trading involves boosting your profit/loss potential. Crypto exchanges offer you 10 times or even up to 100 times the amount you need to open a trade and let you maximize your profits.
For example, assume you were to risk $5000 in Ethereum (ETH) with a 5x leverage. The required margin would only be 10% of $5000. This means that the least required deposit is $500 — serving as collateral. With spot crypto trading, you would need to deposit the whole $5000; that’s pretty unaffordable for small investors.
Margin requirements and returns vary among different crypto exchanges. The leverage you use relies on your exchange and what you feel comfortable with. LBank offers high-leveraged transactions. The default leverage is 20x, but traders can always adjust their preferred leverage. With perpetual contracts, you can get up to 75x leverage.
Ultimately, this trading option gives you an edge to earn from any price difference. However, as much as leverage crypto trading amplifies your returns with less deposit, it can also amplify your loss. So it’s important to set decent leverage and only trade what you can afford to lose.
Advantages & Risks of Leverage Trading Cryptocurrency
Leverage crypto trading comes with both Pros and Risks. In fact, it’s safe to say the benefits and risks go hand in hand. For example, your potential profits are high, and at the same time, the potential loss is huge.
Also, leverage crypto trading allows you to diversify your investments but at much higher risks.
If you’re considering leverage trading crypto, you should do the following:
- Use stop loss: Regardless of your trading strategies, you must always stay protected. This means you should always use stop loss and take profits to limit losses if the market goes sideways.
- Stay focused: Leveraging crypto trading requires full attention. The more focused you’re on a particular trade, the better your decisions.
Wrapping Up
The whole Leverage crypto trading can get really overwhelming sometimes. As such, you need reliable guides and resources to take you through the learning path. LBank offers beginner-friendly resources for investors looking to set foot into cryptocurrency trading and other sectors of blockchain.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
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