For those interested in trading crypto but do not have a large amount of capital to start with, leverage and margin trading could be the option. Leveraged trading lets you borrow money from a broker to increase your buying or selling power, offering the potential for greater profits.
Crypto leverage trading uses borrowed crypto funds to increase one’s trading position beyond what would be available from their cash balance alone. Such a market position is called a leveraged position.
With a margin trading account, you put in a fraction of the total order value. Leveraged funds fill up your order amount. The leveraged/borrowed funds give you increased buying power by allowing you to open more prominent positions than you would ordinarily be able to if you could only use the money in your account.
The number of funds traders can leverage is represented as a fraction or a ratio. For instance, a ratio of 1:10 means that for every unit of crypto, you can get 10 more. Say you want to invest $1,000 in Dogecoin (DOGE) with a 1:10 (10x) leverage. The margin required would be 1/10 of $1,000, meaning you need to have $100 of Doge in your account as collateral for the borrowed capital.
– Greater profit – Diversification – Trade with limited fund – Teaches discipline and risk management
– Greater losse – High-risk trading – Can lose capital quickly in volatile market – Harder for newbie trader
Stop Loss: A Stop Loss is a risk management strategy designed to close a trade at a specific price if the market moves in an unpredictable direction. It is a constructive way to keep losses in check.
Only invest funds you can afford to lose, no matter the success rate of your strategy; margin trading crypto can go against you exceptionally quickly, so you should never invest more than you can afford to lose. As a rule of thumb, risking more than 5% of your account is asking for trouble. You want to invest an amount you could pay off should your account become liquidated.
Leverage trading can be a good strategy because it enables investors with less cash to increase their buying power, increasing their returns from successful investments.