Cryptocurrency is said to be the next big thing in the trading world. We are all familiar with stocks and forex, but Cryptocurrency has taken the lead in the trading world. The decentralized system has attracted people into this new world of crypto trading. Supporters see cryptocurrencies like Bitcoin as the currency of the future, and they’re rushing to buy them before they grow more valuable. People who already know enough about trading might have heard of the term “Leverage Trading,” but most misunderstand what it means.
Let’s take a ride with us & dig out the info on this topic.
If you use Leverage in your trades, you’re buying potential increases in the market, and you can profit a large amount of money from a small investment if your trades go successful. Leverage authorizes you to be loaned money, and you can trade on that amount without putting in more. It also increases the risk of losing money exponentially.
Trading on loaned money already contains enough risk; if you include the volatile markets to Cryptocurrency, the chance of loss increases exponentially. In this case, traders should be extra careful with their tactics. Apart from this, if the user is an excellent trader, they have a significant chance of acquiring great profits.
Leverage Trading with an Example
Leverage trades work so that the trader will get to Leverage according to their money. Suppose you want to make an investment of 1000$ on a trade with a leverage of 10x. You will only need 100$ for that in your account.
Further, the trade has two types; long and short. The Long is called when the trader believes the asset will go up in price and vice versa for short.
If the trade goes successful, the lender will release your deposit cost and the profits. The lender will hold the deposit money and liquidate it if it is lost. The higher you choose to leverage, the more risk each trade holds. If you keep lower Leverage, you can work your way up with a lesser profit.
As the trading volume of Cryptocurrency is increasing every passing day, the demand for Leverage is also increasing. The number of exchanges providing Leverage and margin option has only increased in the past year.
You can look up the best exchanges providing Leverage. Just keep in mind that the margin compounds both profit and loss. Try using a demo account a few days before going into live asset trading.
Leverage Crypto Trading Risks
Some guru on the Internet once said, “Leverage is a double-edged sword while your investment is augmented, so is your risk.” There is no doubt that Leverage can skyrocket your profits, but it can also make you lose all your deposits and leave you in debt if not done right. It can be an excellent tool for those who understand the market and know the proper use of tools, but those just in Crypto trading learning should not try this, at least for a long time. Crypto trading for beginners should start with substantial time on the demo account and a lot less in depositing money.
How to get started with Cryptocurrency Trading with Leverage
- If you are trying Crypto trading as a beginner, the first step is to make a trade account that offers margin and leverage trade options. After observing the increase in trade volumes, many exchanges now offer margin and leverage trading who you can look up on the Internet.
- The second step will be funding your account enough that you can start trading. You will need capital to open a position through which you will be offered Leverage.
- After you fund your account, you can now go to the trade section and choose the Cryptocurrency you plan to invest in. You will find a leverage section on the screen which will provide you with an option of Leverage that can vary from 2x to 100x.
- You will then enter the position details in which you will choose the currency, the amount you would like to buy, following with the Leverage, and either you want to buy it or sell it.
Things to keep in mind
- Suppose you are new to the Leverage and margin concept. It is better to start small and increase gradually according to how you mature.
- You should try a demo account first to understand Crypto trading for beginners.
- You should avoid buying everything at once and spread portions of the position to minimize loss.
- When you open a leveraged trade, you will have to pay interest on the capital you loan from them when you hold it. Keep an eye on that.
- Use technical tools which can help you predict more easily.
Crypto trading with leverage is seen as a high-risk investment plan that depends on the short-term market movement. It is a profit or loss multiplier & it can come very handy if you spend some time on a demo account, and then after understanding the technicalities, you can step into real-time trading.