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.
Apart from the initial capital, you will also be required to maintain a margin threshold for your trades. When the market moves against your position and the margin gets lower than the maintenance threshold, you will need to top-up more funds into your account to avoid liquidating. The threshold position is also known as the maintenance margin.
Increase your trade sizes gradually, especially for margin trading beginners. Start with Small positions and increase your leverage only as you earn more experience; this is an effective strategy to limit risk. Practice leverage trading with a demo account — Using a demo (account funded with test funds) account such as eToro, you can learn the ins and outs of leveraged trading without risking your capital.
Setting a sensible risk management strategy with clearly defined profit goals can significantly assist you in avoiding emotional decision-making that may result in a loss. Divide your Positions into separate portions; for example, you could set a series of taking profit orders to capture your profits incrementally rather than all at once when your single take profit is reached.
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. Take Profit is the opposite of a Stop Loss; you can set a Take Profit order to close your position when the profits hit a specific price due to crypto markets being so volatile.
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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.
1 – Bybit 2 – Binance Future 3 – KuCoin
Only a few platforms have licenses to trade in mild leverage. First and the most prominent among them is undoubtedly the Kraken, which offers 5x leverage for all trading pairs. Admittedly, that’s a tiny amount compared to leverage in other countries, but better anything than nothing. The biggest thing that hinders this leverage trade in the USA market is the possession of licenses.
Traders from the USA have thought of solving this problem in their favor by using VPNs with IP addresses of other countries for crypto trading, but this is illegal, and the consequences of being caught are real. KuCoin is one of the rare crypto exchanges that still allow U.S. traders to access its platform, but it is risky to do so.