Author:
Kelley Daniels
Date:
17/09/2023
Experiences:
Kelley is your go-to for all things NFT!
Experiences:
Kelley is your go-to for all things NFT!
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Table of Content
- Who should make use of this crypto comparison: Start or amplify your trading
- Top 5 factors we look for in a crypto trading platform: Follow the experts
- What is crypto leverage trading: The basics
- Checklist: This is how you find your perfect crypto leverage exchange!
- Other factors to consider: Your margin position
- Crypto leverage and risk management strategies: Improving your trades
- Conclusion: Summing up
- Crypto leverage trading FAQ
Who should make use of this crypto comparison: Start or amplify your trading
Leveraged crypto trading opens up opportunities to realize significantly higher trading returns, which is why it’s on an upward spiral. Current traders looking to take their crypto trading to the next level are inclined to shore up their positions. Newbies with limited capital are also looking to leveraged trading with crypto to amplify their buying and selling power.
To meet this growing demand, several crypto margin platforms have set up shop left, right, and center. But in as much as trading crypto with leverage promises hefty profits, it’s a risky endeavor that can result in substantial losses. You could bypass considerable risk by joining an upstanding crypto leverage exchange. Regardless of where you are in your trading journey, you need to pick the best crypto leverage trading platform for your specific objectives. Whether you’re looking to start or perfect your crypto trading journey, this guide has the answers you need.
Top 5 factors we look for in a crypto trading platform: Follow the experts
Given how volatile crypto leverage trading is, we recommend only the best exchanges on the market to work with. Every crypto trading platform is meticulously evaluated against various factors to wind up with only the best. Below are some of the elements we look at during our comprehensive assessments.
What is crypto leverage trading: The basics
By now, you should have an idea of the kind of crypto exchange you should join. Still, we understand the concept of crypto leverage trading can be very confusing, especially to beginners. This section lets you in on the ins and outs of trading crypto with leverage by addressing questions such as “what is margin in crypto trading?”. This should help you start off on the right foot.
Crypto leverage trading defined
Crypto leverage trading, also known as margin trading, is when you use borrowed capital to buy and sell cryptocurrency or alternative financial derivatives. It boosts your trading power, allowing you to buy and sell crypto with more capital than what you presently have in your wallet. The amount you can borrow will depend on the crypto exchange that you trade on. It’s not uncommon to borrow up to 200x your capital!
How crypto leverage trading works
Before you can start trading crypto trading with leverage, the exchange requires you to deposit an initial amount into your trading account. This initial deposit is referred to as collateral or margin. This margin will depend on the total value of the position you wish to open and the leverage you use. The amount of leverage you use is often described as a ratio, ranging from 1:2(2x) to 1:200 (100x), depending on the site. This ratio shows the number of times your initial capital will be multiplied.
For instance, if you’re looking at margin trading Bitcoin and want to invest $1,000 with 10x leverage, the margin you require is 1/10 of $1,000, which is $100. In other words, you must have $100 in your trading account as collateral for the borrowed funds. If you use a 50x leverage, the margin required is 1/50 of $1,000, which is $20. Pretty much the same concept applies when margin trading Ethereum, Litecoin, or other cryptocurrencies.
Risk and benefits of leveraging
While crypto trading with leverage has its perks, it also has its downsides. It will undoubtedly amplify your trading amounts to give you more trading ability. As a result, this can significantly multiply your potential profits. However, the stakes are higher with leveraging, and the volatile nature of the crypto market doesn’t help. If the market moves against your position, it can lead to equally significant losses. That’s especially true if you use higher leverage. The higher the leverage you use, the higher the risk of liquidating your funds.
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Checklist: This is how you find your perfect crypto leverage exchange!
With so many crypto leverage trading platforms on the market, singling out the best for you can be a tall order. After all, no two traders are the same. You’re bound to have different trading styles, objectives, and interests. Either that or you’re in different places in your trading journey. Even the highest margin crypto trading broker might be for you. Answer the following questions to establish the kind of trader you are to pick a platform that suits your preferences.
What meeting criteria are you looking for?
Crypto leverage trading platforms don’t follow the same handbook. They impose different qualifying criteria on users. For example, some exchanges are very strict and require that you have at least $100,000 in assets to qualify to trade on the platform. Others are more flexible and don’t impose such high amounts. Instead, they allow you to trade, provided your funds can cover the position. You simply have to look for the platform offering the meeting criteria you qualify for and are comfortable with.
Are you looking for the lowest trading fees?
As we mentioned before, trading platforms offer different pricing structures and fees. Compare the costs from the various exchanges reviewed and opt for one that doesn’t stretch your bank balance.
Do you want to take on maximum risk?
If you’re a risky trader, chances are you’ll want a platform that allows you to take on maximum risk. If that’s you, you’re better off looking for an operator that offers the highest possible leverage. After all, the higher the leverage, the higher your potential profits if the position is in your favor. Just bear in mind that this comes with insurmountable risk.
Are you a cautious trader?
Despite margin trading crypto being a risky activity, there’s still room for cautious traders. Engaging in leveraged trading doesn’t mean you can’t stay true to your trading style. To cushion you against imminent risks associated with the activity, like losing your funds to cybercrimes, look for sites with insurance funds. Such a fund protects your money in certain instances to give you peace of mind while trading.
Are you looking for platforms that offer promotions?
If you’re big on promotional bonuses, there’s no harm in looking for a cryptocurrency leverage trading platform that offers them. To attract new customers, some trading platforms offer a bunch of exciting promotions like sign-up bonuses, trading fee discounts, crypto cashback rewards, etc. Figure out the kind of promotion you’re looking for and sign with a platform that offers it.
Other factors to consider: Your margin position
Leveraged trading isn’t a long-term investment. Due to the high management fees and risk of volatility decay, most exchanges only allow you to trade crypto with margin for a short while. When looking for a crypto exchange, you must consider how long you’re allowed to maintain your margin position before you close to avoid forced liquidation. Depending on the exchange, you may be permitted to hold your margin position for 30 days, 60 days, or even longer. Below are some factors that affect how long you can hold your margin position.
Your jurisdiction
Different countries impose different crypto laws that affect the duration of your margin position. Any position open is automatically liquidated if you exceed the stated time frame. The typical average time frame in most countries is 365 days. However, you’re encouraged to familiarize yourself with the crypto laws in your country of interest, so you’re on the same page.
Contract type
The type of contract you have also shows how long you can hold your margin position. Such information is outlined in the terms and conditions, and that’s why you must go through them before joining. For instance, most derivative contracts such as Futures have specific settlement dates, which can be quarterly. In this case, you’re only allowed to maintain your leverage position for three months.
Take a look at our recommended crypto platforms
Crypto leverage and risk management strategies: Improving your trades
Getting favorable results can be challenging even with the best-leveraged crypto trading platform. Here are some strategies to help you avert loss.
Don’t risk all your funds
As much as margin trading crypto requires that you take risks, you don’t have to throw caution to the wind and bet all your money. It can be tempting to do so, especially if your trading strategies are working in your favor and you’re enjoying a high success rate. No matter what, avoid betting all your funds on one position, or in any position, for that matter. A rule of thumb is to bet only 3% of your account balance to cushion you against catastrophic losses.
Use of stop-loss orders
In leveraged crypto trading, stop-loss orders are your best friend. These work by automatically closing off your trading position when it reaches a specific price level. Using this function, you’ll also be in a position to ascertain the amount at stake if the trade falls. While your fixed stop-loss position depends on your trading strategy, it’s advisable to set it where your margin position becomes invalidated.
Be open to guaranteed stops
Guaranteed stops work more or less the same way as stop-loss. The only notable difference is that the trading platform closes off your position regardless of what transpires in the market. As a result, incidences of high volatility won’t affect your position, nor will weekend gaps. That way, you limit your exposure when trading despite prevailing conditions.
Conclusion: Summing up
At this point, it’s clear that leveraged crypto trading is a double-edged sword that has the power to significantly amplify both your gains and losses. Due to the volatile nature of the crypto market, cryptocurrency leverage trading involves massive risks. It’s wise to exercise extreme caution using different risk management and leverage strategies. Most importantly, picking the right platform from the onset will save you a lot of disappointment. Zeroing into the platform’s security, reputation, and usability, among other factors, will go a long way. But in the midst of it all, don’t forget to pick a crypto exchange that suits your individual needs.
Crypto leverage trading FAQ
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