Cryptocurrency trading has many methods and tools to help generate long-term and short-term income. Such financial instruments as futures trading and leverage allow crypto traders to profit on the dropping market. How is it possible? Let’s find it out in this article.
What is Crypto Leverage?
Leverage is the name for borrowed funds a trader takes from a crypto exchange to enter the market with a more profitable position. In such a way, the trader maximizes his possible returns if his trading strategy works.
Different crypto exchanges allow for different sizes of leverage. That may be 10, 20, 30, or 100X. The size of leverage is called ratio, that is, you may use the 1:30 ratio, taking 30 times more DASH coin to open the position on the crypto exchange and so, to receive 30 times higher income. However, keep in mind that the bigger leverage you pick, the higher risk you take. So, leverage helps to maximize profits and bears higher risks in the case the asset’s price moves in the opposite direction.
To leverage crypto, a trader needs to provide a minimum capital called collateral. The amount of collateral depends on the size of leverage the trader picks. Margin is the total value of the trader’s position (collateral plus leverage).
How to Trade with Leverage?
You may use, for example, the WhiteBIT exchange:
- register the account and pass verification;
- deposit capital you would like to use as collateral;
- select the leverage depending on the position you wish to open;
- open the trading position.
If you plan to invest, for example, $1000 in DASH coin and use X10 leverage, that margin will be 1/10 from $1000. So, the minimum amount you need to put is $100. This sum will be your collateral. The higher the leverage you use, the smaller the initial sum you need. However, keep in mind that the more you borrow, the more you lose in case your trading strategy does not work.
