Using Leverage To Trade Cryptocurrency.

Leverage trading can be quite risky and confusing, especially for new traders, and that is why new traders prefer sticking to spot trading. Even with more experienced traders, there is usually high risk involved with this type of trading, and some prefer to avoid it due to the fact that they don't fully understand what the concept means and how it can be applied to trade profitably. In today's post, I'll attempt to explain what leverage trading is, and how to begin trading cryptocurrency using Leverage. Well, let's get straight into it.

---

What Does Leverage Mean in Trading Cryptocurrency?

---

When we speak of Leverage in crypto trading, we're talking about the use of borrowed capital for the trading of cryptocurrencies. Your cryptocurrency exchange, lends you funds to trade, depending on how much you have in your wallet. You are able to borrow this money from your exchange, by staking your current capital as collateral for the funds borrowed.

This gives a trader the ability to open much more larger trading positions than they would have previously been able to trade. Some crypto exchanges allow traders to borrow even up to 150x their current available funds. This dramatically increases the amount of profit a trader can earn, as well as the amount of losses which a trader can suffer especially if the trade goes against their prediction. In some cases, the trader even runs the risk of being liquidated.

Leverage is usually expressed as a ratio. For example, 1:20 means a trader can borrow up to 20 times their current funds, 1:50 means the trader can borrow up to 50 times and so on and so forth. The higher the leverage gets, the more positions can be opened. This Presents an opportunity for great profit or great losses. Let's now take a look at how exactly it works.

---

How Leverage Trading Works With Cryptocurrencies

---

As I mentioned earlier, before being eligible to borrow from your crypto exchange, you'll need to have deposited some funds into your trading account. The purpose for depositing these funds is that, these funds will act as a collateral for the funds you want to borrow. The actual amount of the collateral needed, will depend on the level of leverage which a trader uses, and the total amount of positions the trader intends to open, otherwise known as margin.

Assuming I want to trade $10,000 worth of BTC and I am using Leverage of 1:25, my margin will be (1/25)$10,000=$400. This means I'll need to deposit atleast $400 in my trading account to act as collateral. And if I use a leverage of 1:50, my margin will be (1/50)$10,000=$200. As we can see,with the help of leverage, I will be able to trade BTC worth $10,000 with very little funds I have in my account. It is also worth noting that as the level of leverage increases, so does the probability of getting liquidated. You can reduce the risk of getting liquidated by simply adding funds to your trading account.

Assuming I want to trade ETH worth $1,000 and I want to use a leverage of 1:20, it means my margin would be (1/20)$1,000=$50. I would need at least $50 in my trading account to act as collateral. Assuming I go short and the market follows my prediction and price falls by 50% I'll make a profit of 50%($1,000)=$500. Of course the exchange will subtract transaction fees from the $500. But if the market pumps even 5%, I would instantly get liquidated.

Another fun fact about leverage trading is that with leverage trading we can take short positions. This is very interesting because with spot trading, we make profit only when price increases. With leverage trading we are able to make profits regardless of whether prices are rising or falling. The reason for this is simple. We are not trading the assets themselves per say, but as in the case with Binance futures trading, we are trading contracts whose prices are pegged to the prices of the Cryptocurrencies. So we don't even need to own the asset to trade it. But with spot trading, we must own the asset.

---

Should You Use Leverage In Trading Cryptocurrency?

---

As we have seen above, using Leverage offers some advantages such as;

• A trader has the ability to take both long and short positions as opposed to spot trading

• A trader has the ability to increase thier amount of positions, hence the amount of profit they can earn from a trade.

• Leverage trading is highly profitable and can be done with very little amount of money. This will give a trader the opportunity to invest some extra cash somewhere else.

While all the advantages above sound great and exciting, we've also seen how this form of trading can equally lead to huge losses and in some cases liquidation. Whether or not to use this form of trading is entirely up to your judgement. But if Incase you decide to proceed, then always remember proper risk management, avoid very high level of leverage, and always make sure you do proper analysis (both fundamental and technical) before entering a trade. It is these little activities which will determine your profitability in the long run as a trader.

---

How To Use Leverage Trading On Binance (Binance Futures Trading)

---

Well, if you're into crypto trading, then I'm pretty sure you've heard about Binance. For those who haven't, Binance is the world's most used and most popular Cryptocurrency exchange. You can download the app on Google play store or app store, create and verify your account to begin using it today. With that said, let's take a look at how we can use Leverage trading on Binance.

I am assuming you already have a futures account. Even if you don't, you can create one right now for yourself. For the first 3 months, Binance will limit your leverage to 1:20. Anyways, once your account is set up, you'll first of all need to transfer funds from to your futures wallet. To do this, go to the wallet tab, then click on USD-M Futures and then on transfer

---

---

^{Screenshots Taken From Binance Mobile App}

---

You'll need a minimum of $10 to fund your futures account. Once that is done you can now proceed to the futures tab and use Leverage to trade.

---

---

^{Screenshots From Binance Mobile App}

As you can see above, the balance of my futures account is $2.90. If I apply a leverage of 125x I'll be able to trade BTC worth $313.3 assuming I go long on the BTC/USDT pair and price rises by 10%, I'll make a profit of about $31 before transaction fees. But with the high leverage which I used, the risk of liquidation equally increases.

---

CONCLUSION

As we have seen, leverage provides the perfect opportunity for attaining very high profits with very little investment. We have also seen how the volatile nature of the crypto market can also cause catastrophic losses when using Leverage. Always make sure to do proper analysis before entering any position, use risk management and generally avoid very high amounts of leverage. By following these tips, you would increase your chances of profitablity.

Thanks for reading 👊
Make sure you share your thoughts by commenting....