Article
May 18, 2022

The Art of Leveraged Trading: A Professional Approach

Image

Leverage is an advanced trading mechanism that investors can use to increase their presence in the market by allowing them to pay less than the full amount of their investment. In this article, you will learn how to earn with this advanced tool, the system behind it, and how to leverage your investment on bitoftrade.

What is crypto leverage trading?

Leverage trading crypto increases your buying capacity and exposure to market opportunities by enabling you to pay less than the full price of your investment. The amount of money you can borrow is relative to your initial investment and determined by your chosen leverage.

For example, if you use an 8x leverage on an initial margin of $10k, you will be taking a $70k loan to increase your trading position from $10k to $80k.

Use this simple formula to calculate your potential profits/ losses when using our leverage trading crypto feature:

Profit or Loss = collateral x leverage x (% price movement) - fees

When the market price increases while you hold a long position, you get more from the transaction and more than you could gain if you only traded $10k!

Sounds great, but what’s the catch?

The magic door does not always work! Leveraged trading is a high-risk investment. Unfortunately, traders' forecasts are not always correct. There is always a risk of losing your investment, which is often difficult to predict.

For this reason, exchanges offering leverage trading want to ensure they get their money back. So, there are safeguards in place, known as margin calls. An exchange can “call in”, or liquidate a trader's margin if it reaches a point whereby it looks like they are going to start losing money.

Margin calls can be avoided in a number of ways. Such as putting more funds in during a trade, setting a stop trade, or stop-loss above your liquidation price.

Some of the most common leverage crypto trades are:

  • Spot trades, which means they’re limited to what might happen to a certain cryptocurrency over the space of an hour, or a few hours.
  • A “Long” trade or “buy” on bitoftrade means you are betting on a price going up (known as ‘going long’).
  • A “Short” trade or “sell” on bitoftrade is placing a bet that a price will go down (known as ‘going short’).

In all three, spot, long or short, traders are placing a bet on the price of an asset reaching a certain point: X. Whatever X is for that trader, if the price reaches that within the timescale of the trade, they should earn a profit on the leveraged capital. If the price goes the other way, the losses accumulate until an exchange calls in or liquidates the margin. On bitoftrade, we got the trader’s back! If we detect he is going to lose more than 80% of his investment, we close his position and prevent further losses.

How does high leverage impact your trades?

High leverage is risky in a number of ways.

Generally speaking, although high leverage could result in large profits, it could also cause oversized losses. Alongside this potential massive downside risk, there are other costs backed into taking a high leverage approach.

All of this depends on fees. Opening any leverage position costs fees. And then these fees take money out of your balance every day a trading position is open. In the end, whether you win or lose, there’s the leveraged amount to pay back, plus more fees. On bitoftrade, we don’t charge any accumulated fees. Just 0.05% for opening a leveraged position, an additional 0.05% to close it, and gas fees.

What are the hidden risks of leverage crypto trading?

As anyone who’s spent five minutes trading crypto knows, these are volatile and unpredictable assets. Anything can move the market, and markets can move very quickly themselves. Whether it’s a Tweet from Elon Musk or an unexpected crackdown on cryptocurrencies in China.

Without a doubt, one of the main risks of leverage trading is being overexposed, and over-leveraged. When it comes to crypto, the risks are amplified. As these assets move quicker, are more volatile, and are subject to multi-faceted market forces, the risk factor is greater.

Even for experienced traders, understanding why the market moves certain ways isn’t easy. Accurately predicting that it will move the way you want it is even harder.

Investors and brokers in traditional stocks get it wrong all the time. And these are markets and assets that have been around for over 100 years. Consider the fact that Bitcoin and the whole cryptocurrency sector have only been around since 2008.

Ultimately, that’s the risk for investors. A lack of experience, knowledge, and time, relatively speaking, compared to other asset classes. Unless you have the capital to move the market yourself, there is always the risk that the tide of fortune will move in the wrong direction.

How to leverage trade crypto pairs?

When you are trading crypto pairs, such as WBTC/ETH and ETH/USDC, it’s another way of hedging your bets. It’s a great way for more experienced traders to exploit and benefit from an arbitrage opportunity.

Instead of betting 100% of the leveraged amount on one crypto, you could buy into both, using the price differential to increase profit margins. Try to pick cryptocurrencies with high trading volumes, study the correlation before selecting the trade, and then choose your position.

This strategy is generally only advisable for those with advanced trading experience. Start small, and use each trade as a learning experience.

How to Pick an Appropriate Leverage Ratio?

The crypto leverage ratio depends on what an exchange offers. bitoftrade allows you to make transactions with more crypto than you have. In order to execute a leveraged deal, you will need to choose the leverage level (up to X20) and the token pair. Your investment will serve as collateral in case of the price decreases significantly.

Advantages of leveraging crypto assets on bitoftrade

We help your crypto go further by giving you a better buying capacity.

Leveraged trading is currently one of the few features that grant us a competitive edge – it is one of the most prominent advantages we have over other DEXs in terms of functionality. You can always close the position and get your investment back with its profit/decreased by the loss, based on the current market price. In case your investment is at risk of losing 80% of its value, it will be closed automatically and you will receive the rest after fees reduction, directly back to your wallet. Otherwise, it will stay open until you decide to close it.

bitoftrade offers leveraged trading on the following token pairs:

ETH/USDC
BTC/USDC
YFI/USDC
CRV/USDC
1INCH/USDC
ZRX/USDC
MKR/USDC
COMP/USDC
SUSHI/USDC
LINK/USDC
AAVE/USDC

bitoftrade is equipped with advanced trading solutions that anyone can use, making it easy to leverage crypto assets to increase profits.

How does it work?

First, the trader must deposit some funds to his personal trading dashboard where these funds will be used as collateral. Then you can set your position conditions on bitoftrade’s smart widget, choose the leveraged pair, buy/sell, and the number of tokens. bitoftrade’s protocol is utilizing the dYdX L2 smart contract where market makers are providing liquidity directly to order books. The position will be opened right away since it is using market-type orders.

For those who are new to leverage crypto trading, there are three rules every exchange recommends:

  • Limit your capital exposure ratio to a low level.
  • Use the stop-loss approach to further reduce risk (bitoftrade is already doing this for you at 80%).
  • Keep trades small, short, and sweet, to use each one as a learning experience.

Crypto leverage trading: Key takeaways

Leveraging crypto assets to trade, whether you take a spot, long or short position is an exciting way to earn more from the crypto you have. In some cases, you can leverage 100x what you hold in a wallet. However, for those new to this, we recommend a lower leverage ratio. Leverage crypto trading is always risky. Never bet more than you can afford to lose, and use every trade as a chance to learn and improve strategies.

With any investment, always keep in mind:

*Leveraged trading allows you to amplify your profit from successful predictions. *This is a much higher-risk investment.

Are you ready to embrace leverage crypto trading to increase your profits?

Find out more, and start leverage trading with bitoftrade: https://bitoftrade.com

Exciting developments and updates are coming to bitoftrade Be the first to know.

Related posts

Browse all articles