What is leverage in crypto trading?

In simple terms leveraged trading in crypto is a way of using borrowed funds that are often used by investors to trade cryptocurrencies when trading with more capital than invested in the trading account.

Leveraged crypto trading increases the buying power for investors where it can multiply profits from 2 times to several hundred times depending on the leverage ratio they use.

Trading crypto with leverage

For example, you are a trader who has a capital of $ 1000 and will carry out the trading process. With this capital, you want to buy ETH tokens at $500 per token. If you don't use leverage, then you can only buy 2 ETH tokens. If you use 10x leverage, then you can buy more than 2 ETH tokens. This means that this $1000 capital is the margin limit that you have set to be able to trade.

It is a style of investment in which investors borrow funds from an exchange in exchange for a fee. When you make a profit, your win is multiplied by the leverage ratio you use. This also applies to your losses.

If investors enter the market at the right time Leveraged trading in crypto can be very profitable. But at the same time, it can be a very risky venture as the margin capital put into the trade always acts as risk capital. For that, before we use leverage in the crypto market, we must know its function, how it works, when to use it, all costs, and all other important factors that we should reconsider.

Leverage function in crypto trading

The function of Leverage trading crypto aims to continuously increase the purchasing power of investors or traders on the asset market. Thus, investors can get a maximum amount of profit even though their personal capital is small. Meanwhile, the use of leverage in crypto can also allow traders to profit when the set price rises.

How does leveraged crypto trading work and be profitable?

Crypto leverage trading requires a broker offering derivatives trading such as CFDs, ETFs, Swaps, or Futures, this is the same as in any other financial market. All you need to access leveraged crypto products is an initial margin deposit which can be deposited as cryptocurrency or fiat currency. Once your initial margin is credited to your account, you are free to choose from all the different products offered by the operator and open a coin position of your choice.

What the broker earns are trading fees which also increase as the position size increases. When you make a profit with a leveraged position in crypto, you get an immediate profit in the coin you are trading, for example, XRP, or you will get USDT which is a common stable coin used by many exchanges to pay for profits.

For example, you want to buy bitcoin assets at a crypto broker or exchange because you see the extraordinary opportunities in this asset. Unfortunately, you currently only have $1000 in cash when you intend to buy bitcoins with a value of more than $1000.

To increase your profit potential, you borrow $9000 from the broker or exchange concerned. Now, you have $10,000 which you can use to trade crypto according to the amount of exposure you want.

If it is calculated in terms of the leverage ratio, it means that from your initial capital which was only $1000, you can buy bitcoin assets worth $10,000. In this case, the leverage ratio of the strategy you are doing is 1:10 or 10x.

For this reason, this method can minimize the capital you invest. So, when you pay the full price for an investment instrument, you only need to pay half of it.