Leverage Trading
Hello guys...welcome back to my blog, It gives me joy to see you come here over and over to check out what I do...I believe one of the reasons you keep showing up here is because you get value from what I dish. Trust me, I hope to do much more as long as am being privileged by God.
Today we would be starting another discussion entirely. If you have been following, you would know we just concluded a discussion on the topic Risk and Risk management. So in this post, we would be discussing Leverage and I hope to deliver it in the most simplest way I can so we all can learn.
In a layman's definition, leverage simply means an advantage. An advantage or edge someone has that positions him well for some benefit which ordinarily he wouldn't have access to if he were to go by the normal means or approach.
Leverage is also applicable in crypto trading and guess what, it has helped many achieve their investment and trading goals, especially for those who really know how to use it. Yeah! So many tried using the leverage feature and they end up hurting themselves in the process.
So let me say this upfront, leverage in trading is a double edged sword, which can benefit you massively by helping you make massive profit on trades and on the flip could shut down your trading account, bringing it to zero. So what then are we talking about? Let's delve deeper...
Leverage Trading is simply a kind of trading where an investor borrows assets from his trading platforms in a bid to increase his trading capacity which should bring in massive profit return if all goes well. The investors borrow to increase his buying and selling power in the market.
Take for instance, the investors has just $5 but need about $15 to purchase and asset to open a trading position which he deems profitable using such amount, he can just opt in for this feature by depositing the $5 he has and then go for X3 of what he has which automatically make his $5, $15.
Leverage are always shown as X or in ratio such a 10:1 20:1 and so on but it all means the same as the idea behind it is equally the same whether in ratio or in the X form. The X signifies multiplier.
So 10:1 also mean 10X, 20:1 means 20X. It mean your capital is multiplied by these leverages to give you your desired trading capacity which you do not have originally...kindly refer to the example I gave earlier to understand better.
And just as I've mentioned earlier, the use of leverage does not mean automatic profit, you still need to put in your expertise to ensure to get the huge profit you're yearning for because all the market factors would still play out as expected. The advantage you have here is that you were borrowed more by your trading platform to earn more.
So in a situation where the market goes against you, you would also suffer a huge loss, just in the same proportion, if it were to be profit. In other words it gives both massive profit and loss depending on the outcome of the trade.
In this section we would talk about how to use the leverage in trading. Kindly follow as I explain to the best of my ability.
The first thing will be to deposit into your trading account as this grants you access to the use of the feature. You cannot enjoy the leverage feature without having deposit. The goal of leverage is to amplify or multiply what you have to what you actually need to open a position. Therefore you have to do a deposit which equally serves as collateral.
Lets now assume you desire to trade an asset i.e ETH at the rate of $1000 but all you have is just $500, you can just use the leverage feature, adjust the parameters to 2x, meaning times two which automatically gives you the $1000 needed for the trade.
If the outcome of the trade then turns out in your favour, let's say you made a profit percentage of say 50%, then it can then be calculated thus...
| $500 × 2X(leverage) × 50% = $500 |
|---|
As you can see from this example. The investor just made a whopping profit of $500 dollars via leverage. If he were to trade with the original $500 he has, he would only make $250 dollars now he has made $500 using 2x leverage.
It also important to noted that this is just the gross profit, there will have to be some deduction which would include trading/transaction fee and funding rate, this then helps us arrive at the net profit which is all yours. That's the power of leverage.
But on the flip, if the trade goes against you, you would have to suffer the loss in the same magnitude and you could even be kicked out if there is no more margin for the trade.
I hope I have made this simple enough for us all just like I promised. Well we are gonna explore other important aspect of this topic in my next post...making it concise and comprehensive is actually my goal for this post.
There you go friends.I would love to wrap it up at this juncture. I want to believe you've gotten so much from this piece. As my usual custom is, I would always encourage that you DYOR to be sure of every financial step you would want to take as I won't be liable for any form of loss encountered by you.
Feel free to share with me your thoughts in the comment section. Thanks for your time once again. Gracias!
Disclaimer: This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your own research and consult a financial advisor.
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@lhorgic♥️
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@theentertainer