Archimedes says, “Give me a place to stand and a lever long enough, and I will move the world.”, which sounds pretty easy to move something with leverage, right? But leveraged transactions in the crypto-based financial world might be quite confusing, especially for beginners.
But what is the definition of leverage in crypto trading? To fully cover the answer to this question, we first need to look at the definition of leverage itself. Then, we can jump and examine the role of leverage in crypto trading in detail.
- Leverage in crypto uses debt or borrowed capital for a cryptocurrency investment to increase potential profits.
- The leverage rates are measured through ratios, such as 1:5 (5x), 1:10 (10x), and 1:50 (50x).
- There are two types of leveraged trading in crypto: long and short leveraged positions.
- Although leverage trading promises huge profits, it might end up that you lose the majority of your assets or each one of them in some cases.
Leverage in Crypto Trading
Leveraged trading in the crypto world is more or less the same thing; the thing that changes is the type of asset used. A coin trader investing using leverage aims to increase the profit rate by executing transactions through borrowed capital. Thus, the traders overtrump their investments, enhancing buying or selling power to play with a larger amount of cryptocurrencies. To put leverage in crypto in a nutshell, it provides more capital than what you already have in your digital wallet.
Leverage allows coin traders to amplify their earnings despite a small capital with collateral. However, it should be noted that whereas leveraged trading can end up multiplied returns, it might cause doom to your profits due to the high volatility of the coin markets. In other words, the path supposed to lead a profit kingdom might reach the end of the road as substantial losses if the market fluctuates against your wishes.
Before moving on: Learn more about crypto trading in general.
The Logic of Leverage in Crypto Trading
In order to trade with leverage, you need to deposit the so-called collateral into your trading account. The initiative capital depends on your leverage and the total value of the position.
The amount of leverage is known as a ratio, and it could be 1:2 (2x), 1:5 (10x), or 1:10 (10x), which can reach up to 100 times based on the crypto exchange. If you ask what these numbers mean, they are how many times your capital is multiplied.
We can explain a leveraged transaction in the coin world with an example as follows:
- Suppose you have an initial budget of $3000, and you want to use all of the $3000 for the transaction.
- You need to determine the ratio of the leverage. According to the exchange you are using, will its value be 10x, 20x, or 100x?
A reminder: Almost all coin exchanges offer higher leverage ratios for BTC but less leverage for altcoins. Learn more about crypto exchanges.
- In a scenario where you choose 10x leverage, you open the transaction when Bitcoin is $30,000, followed by a 10% value rise by $3000. In this case, you would get a 100% profit.
A friendly reminder: Leverage may not always result in gains. Let’s say you open a 10x leveraged trade with a $1000 initial budget. When you open the transaction, the value of ETH is $10,000. However, the value of ETH drops to $9,500 for some reason, which is a 5% loss. On the other hand, this is your loss of 50% as you open trades with 10x leverage.
Types of Leverage Positions: Long and Short Leveraged Position
The leverage option can be used in both long and short positions. While a long leveraged position is opened when an asset’s value is expected to increase, a short position means expectations are the asset’s price will decrease.
Long Leveraged Position in Crypto
Suppose an investor wants to initiate a long position via $10,000 worth of ETH with a 10x leverage ratio, requiring $1,000 as collateral.
A scenario in which ETH’s value increases by 20% provides a net profit of $2,000. On the other hand, if this transaction is executed without leverage, the net profit would be $200.
Short Leveraged Position in Crypto
Suppose that an investor seeks to initiate a $10,000 short position on BTC with 10x leverage.
The trader borrows BTC to sell it at the current market price to do so with collateral of $1,000,
Because trading is determined on 10x leverage, our fellow trader can sell $10,000 worth of BTC.
Let’s say the BTC’s price is $40,000; a borrowed-to-be-sold 0.25 BTC would provide a net profit of $2,000 in a scenario the BTC price falls by 20%.
A reminder, again: Net profits are measured without considering the required fees demanded, differing based on the crypto exchange used.
Things to Consider For Leverage in Crypto Trading
Leverage trading is a completely scenario-based trading method that can be quite profitable or harmful. For this reason, it is useful to know about possible mistakes in leverage trading in crypto.
- One of the most common mistakes traders makes is overlooking the open rules, which vary from exchange to exchange and cryptocurrency.
- One of the other biggest mistakes associated with leverage trading is the blindly gambled leverage that is not based on analysis, such as committing high leverage.
- Another major mistake is to refuse to stop and act according to greed, which results in the loss of the majority of the investor’s assets in many scenarios.
Pros & Cons of Margin Trading in Crypto
Now you know what to consider before starting margin trading. Super. Let’s take a look at the pros and cons of leverage trading in general, and then let’s get started with the most popular platforms.
Best Crypto Leverage Trading Platforms of 2022
So, we have got an insight into leverage trading in crypto; how about putting it into practice? Here are the ten best leverage trading platforms we have listed for you!
Bybit, one of the world’s largest crypto money platforms with high BTC and ETH volumes, is one of the most popular cryptocurrency exchanges, with over 2 million registered users.
The platform builds the company’s existence in a customer-focused way, offering individual and corporate clients worldwide the opportunity to earn through a variety of cleverly crafted professional and innovative trading and leverage trading methods.
Aiming to create the most reliable and convenient cryptocurrency trading platform globally by adopting the trio of fair, transparent, and efficiency as its mission, ByBit offers 24/7 customer support in many languages to respond to the needs of its customers on time.
ByBit is also an opportunity for users who want to experience passive income with mining packages.
Leverage Ratio: up to 1:100
Coins: BTC, ETH, EOS, XRP and more than +100 altcoins.
PrimeBit is a peer-to-peer trading platform that is easy to use and register, offering its users innovative crypto trading tools and leveraged trading at various rates.
What sets PrimeBit apart from other crypto exchanges offering crypto derivatives is that it offers a platform for traders to enable peer-to-peer interaction with up to 200x leverage.
Instead of trading with real tokens, PrimeBit allows clients to trade contracts that derive their value from Bitcoin, Ethereum, and Litecoin, through an account that can be acquired with only an email and requires no minimum deposit.
Once your account is ready-to-fly, you can start trading on the exchange by depositing assets in your PrimeBit wallet. However, if you want to warm up first, the platform also offers a full-featured demo account for traders who want to practice.
Leverage Ratio: up to 1:200
Coins: BTC, ETH, LTC.
As we all know, Binance is the greatest and most-used cryptocurrency exchange for spot trading, or it used to be only, because years ago, Binance announced its leverage trading sphere named Binance Futures. However, what makes Binance Futures look shinier than other platforms is that it enables users to benefit from dozens of altcoin margin trading and cryptocurrency features.
As for the leverage ratio and diversity of coins, there are Futures Contracts, including BCH, XRP, and ETC, which shows that they offer much more opportunity than other Bitcoin margin brokers. Leverage ranges from 20x leverage by default but can be increased up to 125x.
Around 100 altcoins can be traded against USDT or BTC. Also, although the Futures feature also supports fiat money transfers, you need to verify your account via KYC for this.
In order to benefit from the Binance Future feature, users must first have a Binance Global membership. Then, you should create your account, which you can perform leveraged transactions, from the “Open Futures Account” tab.
Leverage Ratio: up to 1:125
Coins: BTC, ETH, BNB, ADA, LINK, BCH, XRP, DOT, and LTC Coin
BitMEX is one of the popular Bitcoin futures and derivatives exchanges that allow trading with leverage, especially preferred by experienced traders due to its high speed and advanced trading features.
Although it appeals to coin-trading experts due to its features, the platform has a simple interface and an easy-to-use dashboard.
BitMEX offers its users the opportunity to trade coins such as ADA, BCH, EOS, LTC, TRX, and XRP and pair-transaction coins such as BTC/USD and ETH/USD. With these, you can place a long/short position with a stop at any price on any of them for a loss order and pair trades to prevent liquidations.
As for the last notes, BitMEX, where the margin is up to 100x, pays significant attention to the security of its users.
Leverage Ratio: up to 1:100
Coins: BTC, ETH, LTC, EOS, XRP, ADA, BCH, TRX
BaseFEX is one of those crypto trading platforms, offering margin trading for six cryptocurrencies that can be traded against USD and USDT with a secure, reliable, and quick order matching engine.
Although the trading leverage ratio is relatively high as of 1:100, it can be only benefited while trading BTC. The rest of the coins offer a leverage ratio of up to 20x.
Leverage Ratio: up to 1:100
Coins: BTC, ETH, Ripple, B.C.H., LTC, BNB, EOS.
PrimeXBT is a platform among the world’s leading cryptocurrency exchanges, offering its users a variety of financial instruments such as stocks, commodities, and forex, and trading traditional market products along with crypto world transactions.
PrimeXBT allows the use of 100 units of leverage in cryptocurrencies. Thanks to its facilities, the platform allows its users to make big profits by using up to 1:100 leverage in their investment transactions with Bitcoin and various cryptocurrencies.
One of the advantages of this platform is that it is both simple for beginners and professional enough to offer advanced tools for professional users.
In addition, users can use Bitcoin as leverage to trade in various markets apart from cryptocurrencies such as Forex (F.X.), commodities, and indices.
The platform requires no KYC and supports BTC-based deposits only.
Leverage Ratio: up to 1:100
Coins: BTC, ETH, LTC, EOS, XRP
FTX is a platform for crypto derivatives trading, which is developing day by day, with advanced trading features and next-generation trading products.
The platform is very handy in deposit and asset transfer as it supports USD, EUR, and GBP fiat currencies. It’s easy to convert and pay stablecoins on FTX Users can trade and exchange various crypto derivatives with a single-margin wallet.
As for leverage, 10x leverage is set by default due to security concerns. Besides, FTX allows its users to trade all leverage-supported cryptos with a leverage of 101x for all popular trading pairs. On top of that, various leverage options can be used by traders for nominal collateral so that they can use stop-loss to prevent the liquidation of their assets.
Leverage Ratio: up to 100x
Coins: ERC-20 BULL and BEAR tokens
CEX.io is a cryptocurrency exchange that supports a variety of deposit types, suitable for both novice and experienced users. The platform supports USD, EUR, GBP, and RUB as fiat. Various payment instruments are accepted for deposits, such as ACH VISA, MASTERCARD, and SWIFT.
The exchange allows trading with multiple fiat currencies, and it also has many different trading pairs such as “BTC/USD, ETH/USD, BCH/USD, BCH/BTC, BTC/EUR, ETH/ETH/BTC,” which means less trading and less fees.
Leverage Ratio: Up to 3x
Coins: BTC, ETH, BCH.
Kraken, which was established to facilitate the trading of cryptocurrencies, especially for American citizens, is a crypto money exchange where those who participate in the market can trade. The exchange allows traders to buy or sell cryptocurrencies using a variety of fiat currencies, including U.S. Dollars, Canadian Dollars, and Euros.
The maximum offered rate on Kraken for margin trading is 5x. However, although 5x may seem small, 5x is a pretty good rate, considering the small number of crypto exchanges operating in America.
Users of Kraken can initiate margin trading transactions via BTC, BCH., ETH, ETC, XMR, XRP, REP against BTC, ETH, USD, and EUR, based on a long/short position on any of these pairs at any price the user wishes.
Leverage Ratio: up to 5x
Coins: BTC, BCH, ETH, ETC, XMR, XRP, REP
Although Gate.io exchange is known by users for discovering and listing forgotten tokens in the most remote corner, it is actually one of the most secret players in crypto margin trading. It offers its users the opportunity to earn with up to 10x leverage along with collateral funding and borrowing services. It’s also cheery on the top that it allows you to leverage around 40 tokens.
Leverage Ratio: up to 10x
Coins: ADA, BTC, DOGE, ETC, ETH, and more than 35 coins
What is leverage in crypto trading?
Leverage is the method of borrowing cryptocurrency such as BTC or ETH to finance investment to amplify the profit.
Is leverage in crypto trading profitable?
Leveraged trading in crypto can provide huge profits at ratios such as 10x 50x or result in serious losses due to the high volatility in the coin market.
What is the difference between margin and leverage?
Margin states the necessary amount of money to open a position, whereas leverage involves borrowing money to finance investment to multiply the profit.
What are some crypto exchanges for leverage trading?
Binance, ByBit, and FTX are among the popular exchanges offering leverage trading in cryptos.
What should be considered while opening a leverage position?
First of all, before opening a position, it is necessary to analyze the asset considered for leverage thoroughly and act with a mentality that is far from greedy.