How To Leverage Trade Crypto

Cryptocurrency adoption soared in 2021 and 2022. Decentralized finance (DeFi), non-fungible tokens (NFTs), and Bitcoin (BTC) reaching record highs captivated people.

By August 2021, the entire crypto market cap surpassed $2 trillion.

The surge in trading volume attracted day traders seeking maximum gains through leverage.

High trading volumes sparked FOMO among traders, leading some to borrow funds for increased buying power and potential profits.

This practice is known as leverage or margin trading, where borrowed funds amplify both gains and losses, introducing significant risk.

Even after Terra’s depegging, some investors aim to buy the dip and wait for market recovery. Discover how to leverage trade crypto to swiftly grow your portfolio.

Trading Cryptocurrency on Margin

Leverage or margin trading boosts buying power and potential profits with successful trades.

It lets you borrow money, enabling larger trades than using only your funds.

However, it also escalates the risk of losing all your money or facing liquidation.

Trading with borrowed funds carries inherent risk, amplified in the volatile crypto markets.

Crypto traders must exercise caution, utilizing hedging and other strategies to manage risk, as even expertise in market trends and technical analysis won’t eliminate risk.

Despite the risks, margin trading in crypto provides day traders an excellent opportunity to increase profits.

How Leverage Trading Works

In leverage trading, a trader deposits funds to borrow more money. For example, with a 1-to-10 ratio, a $5,000 trade only requires a $500 investment. Funds must stay in the account as collateral.

Positions are either long (betting on price increase) or short (betting on decrease). In a short trade, you borrow Bitcoin instead of cash.

If the price drops, you buy BTC at the lower price, return it to the lender, and keep the profits.

Successful long trades release your deposit and earnings; losses lead to liquidation, and the broker keeps your money. Lowering leverage reduces the risk of liquidation.

Some platforms offer high leverage, but it may not always be wise to use it.

Where to Trade Cryptocurrency With Leverage

The exponential growth of the trading volume in the crypto space has increased the demand for crypto exchanges offering leverage trading.

This year has seen a new wave of exchanges specializing in crypto derivatives trading emerge.

Before getting started with trading live assets, you should remember that margin trading can compound both your profits and losses.

Learning technical analysis and risk-management strategies on a demo account before trading with real funds would be wise.

The FTX Cryptocurrency Derivatives Exchange (FTX)  is backed by leading crypto venture capital firms, including Binance.

FTX is best known for its innovative trading instruments and low fees. Some of the state-of-the-art features FTX offers is trading with perpetual futures, options and 20 different leveraged tokens.

FTX also provides deep liquidity and unlimited withdrawals catering to both retail and institutional investors.

Bybit is a crypto derivatives-only exchange that offers some of the most innovative charting features and is a top 5 crypto derivatives exchange by volume.

The platform supports trading inverse perpetual and Tether (USDT) perpetual futures contracts.

Bybit’s ability to handle more trades per second than most legacy exchanges has quickly made it one of the most popular up-and-coming trading platforms.

Risks of Leverage Trading Crypto

Leverage can boost profits but comes with high risk in crypto margin trading.

Higher leverage means less room for error and quicker liquidation on price fluctuations.

A mere 1% price difference could lead to significant losses.

Crypto markets are volatile, posing risks in positive and negative directions. To minimize risk, trade only what you can afford to lose and secure profits.

Use stop-loss to close trades at set amounts during unfavorable market moves.

Managing risk involves trading smaller amounts to maintain low risk and avoid using all funds in one trade. Lower leverage preserves more funds and enables more trades.

Some platforms offer negative balance protection, preventing losses beyond your account balance.

The platform absorbs losses resulting from leverage-induced negative equity.

Read more: What is Flare Crypto? A Comprehensive Analysis

Pro tip: Use Express VPN

Opting for a virtual private network (VPN) is an excellent decision if safeguarding your data and concealing your IP address from potential hackers is a priority.

Utilizing a VPN service ensures the masking of your online identity, providing a secure and anonymous environment for conducting online crypto transactions.

Enhancing the security of your crypto trading, a VPN service safeguards against hackers and malicious software, even when using public Wi-Fi networks.

Various VPN options are available to secure your cryptocurrency activities.

Express VPN is renowned for its reliability and security, offering an easy-to-navigate interface suitable for both VPN novices and experienced users.

With advanced features such as blocking incoming and outgoing traffic even when the VPN is inactive, Express VPN stands out as an ideal choice for both beginners and experts.

Other Ways to Leverage Your Cryptocurrency

BlockFi and Celsius, among other lending platforms, offer users alternative methods to leverage their digital assets.

These platforms enable you to use your BTC as collateral to secure a cash loan, providing flexibility for real estate investments or additional BTC purchases.

Upon loan repayment, you regain the BTC used as collateral, allowing you to benefit from any increase in BTC value.

Many users of BlockFi and Celsius choose loans with a long-term perspective, avoiding the sale of their Bitcoin in anticipation of its potential future value appreciation.

These platforms cater to Bitcoin and Ethereum investors, providing a means to unlock asset value without the necessity of selling.

Cryptocurrency Markets

The crypto market cap has dropped below $1 trillion since the depegging of Terra, and many tokens are in the doldrums from which they will need to recover to reach moderate levels once again.

Is Leverage Trading Crypto Worth it?

Leverage acts as a magnifier for profits or losses. It’s advisable to start with a demo account to master technical analysis and comprehend market trends.

Developing the ability to predict asset movements and practicing leverage in a controlled environment enhances your trading skills.

A crucial aspect of mastering leverage trading is understanding that it’s not mandatory to utilize leverage at all times.

Despite being a prominent financial tool, judicious use of leverage based on market conditions can preserve valuable resources.

As you deepen your understanding of risk management and refine your trading strategies, proficiency in successful leveraged trading should follow.

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