How to Trade Bitcoin with Leverage?

Trading on leverage is a way for traders to gain more exposure to an asset than what they put down in funds, giving them a significantly greater advantage to profit with the “borrowed funds”.

Leverage is the factor by which a trader multiplies their position by, for example, 100x leverage will increase a trade’s influence and potential profit by 100 times.

Logically, utilizing leverage does increase the risk element in comparison to a standard buy-sell trade. Fortunately, the risk is not proportionate to the leverage also, meaning that your losses are not also multiplied by 100 (for example) as you can’t lose more than you initially committed to the trade.

First things first, you’ll need to choose a crypto trading platform that provides leverage. Today’s best options are PrimeXBT and BitMEX which both offer 100x leverage on Bitcoin. Prime XBT also extends 100x leverage to ETH, LTC, XRP, and EOS.

The next best options are Poloniex, Kraken, and OkEX which also offer leverage, yet considerably less of between 2.5x — 5x but to a greater range of crypto-asset.

After depositing the funds you wish to trade with into your account you may select how much leverage you wish to utilize upon placing an order. The platform will typically allocate an exposure limit in order to protect you and itself from going into debt by ensuring the margin (required deposit) can cover the loss if the trade is unlucky.

See an example in the diagram below (source PrimeXBT):

Another advantage of leveraged trading is that it generally allows you to short an asset. This means that you can make money from the fall in price of an asset. In the case of a short position, you are borrowing the coin in question in order to sell it and buy it back at a lower price in the future — keeping the difference in price as your profit after repaying the initial ‘debt’.

What is Margin Call?

A margin call is issued to a trader by the platform at the point their equity equals or drops below the required margin amount.

See the diagram below (source PrimeXBT):

As you can see equity can be eaten up quickly with leveraged positions, the benefit is that far less need be risked to gain access to the opportunity of trading with so much capital. To gain the same profit exposure trading on a standard exchange, it would require that you invest 100% of the total position — using the example above, $100,000 as opposed to just 1% with $1,000.

Risk can be minimized with the use of stop-loss orders and a diversified portfolio by holding multiple positions at the one time, on the same or more assets. The goal being, that one’s win will greatly exceed the other trades loss.

Because leverage increases a position size it is crucial to choose a trading platform with low fees, otherwise, traders are at risk of the fees adding up to almost as much as the amount invested to trade in the first place.

Thankfully, both Prime XBT and BitMEX offer some of the lowest fees in the crypto landscape. PrimeXBT’s are only 0.05% on all assets and trades and BitMEX takes 0.075% on BTC trades and 0.25% on all other altcoins with less leverage.

When used wisely, leverage is one of the most powerful trading tools. As cryptocurrency becomes even more of a prominent emerging technology, this advanced method is being used and vantaged by forex and equity traders for many years, yet only recently offered to the crypto markets to meet the demand of fervent traders.

Leverage enables traders to shift gears and trade with the trend in order to profit irrespective of the market condition, 365 days a year.