How does leverage trading influence your trading volume?

leverage trading

One of the major reasons behind the exponential rise in crypto trading trends is the astronomical returns assured by the digital asset. If you know the basics of trading, you know that a higher trading position and trading volume drives up the profits to even greater heights. But, what if you are slightly short on the trading capital? You might have the prediction that a certain coin is poised to make an upward swing and you are aiming for a shooting profit through a bigger trading position. Read more about multibank.io.

Well, this is where you sign up for crypto leverage trading. But, how high can you trade with leverage trading?

Well, that largely depends on the margin you are eligible for. Also, one has to take into account the leverage range available by the chosen exchange. We will delve into the details of how high you can trade with leverage trading but before that, let’s have a clear idea of crypto leverage trading. Check out more about leverage trading here.

Leverage trading in crypto

Leverage trading is a trading method that allows traders to open high trading positions with the help of “leverage”.

The “leverage” here implies extra funds that a trader borrows to expand his or her trading position. If you are short on capital and want to trade big, you can lend additional funds from crypto exchanges to add leverage to your trading capital and open a greater trading position. Larger trading positions make way for higher profits than what was initially possible with your own share of trading capital.

Leverage trading is also dubbed as “margin trading” at times. It’s because you need to maintain a basic margin to engage in crypto leverage trading. The margin will serve as a security or collateral against which the crypto exchange will offer you the lent fund.

How high can you go with leverage trading?

Those who are new to crypto leverage trading often wonder about the maximum leverage limit for their trading position.

Now, crypto leverage trading follows a wide range of leverage levels. It might start from 2x and can go as high as 20x to even 100x. Some crypto exchanges even offer up to 200x leverage for crypto leverage trading. The range of leverage, as mentioned before, will depend on the maximum margin you can provide. One thing you should know here is that you will need to keep the margin intact for as long as you have plans to continue with the crypto leverage trading position.

Your crypto leverage trading volume will be calculated largely based on the  level of leverage you will sign up for. So, if you opt for 2x leverage, the trading volume will increase by 2x than what was previously possible with your own share of trading capital.

Let’s have an example here.

Say, you have saved $1000 for your trading capital. But, you want to open a higher trading position, assuming higher profits. In that case, say, you take a 10x leverage. The leverage will immediately hike up the trading volume for you by 10x. So, based on that calculation, your total trading capital now reaches $10,000. In other words, you can now open a stellar $10,000-worth trading position with just $1,000 from your pocket.

Now, if the coin prices move upward, the trader will enjoy 10x times of the profit through crypto leverage trading. If the upward swing occurs by 1%, you will enjoy $1,000-worth profit that will translate to 10% profit on the trader’s margin.

Long and short positions

If you are new to crypto leverage trading, you should know that leverage trading enables traders to trade big in both short and long positions.

In a long position, a trader engages in crypto leverage trading when the prices are up and the crypto industry is in a bullish phase. But, the short position is about engaging in crypto leverage trading when the market is passing through a bearish phase.

So, one of the best things about crypto leverage trading is that it allows traders to make the most of both the bullish and bearish phases of a crypto. In fact, it can be an effective tool to create a balanced trading portfolio in the crypto space.

Risks associated with crypto leverage trading

Well, crypto leverage trading is not just about opening a higher trading position and bagging in huge profits with limited capital from one’s own pocket. You can’t forget the risk factor here. If you are trading with leverage, you will incur a higher level of loss if the market fails than what you would have incurred with your own limited capital.

On top of that, there is the glitch of margin call. As mentioned above, you will have to maintain the margin amount to keep the trading position open. But, if you incur a huge loss, the margin amount will be liquidated and the exchange will be compelled to shut down the trading position. Before shutting down the trading position, the exchange will send a warning so that you can refill the margin amount before it is too late. The warning is officially dubbed as “margin call” in the jargon of cryoto leverage trading. If you can’t refill the margin amount, the trading position will get closed.

Also, you will have to pay a certain rate of interest to the crypto exchange for lending the borrowed funds for crypto leverage trading.

Final words

The risks mentioned above are in no way intended to dissuade you from signing up for crypto leverage trading. No one is denying that leverage trading is not risky- but on a brighter note, the trading method opens doors for larger trades and dramatically high profits even when you can only provide limited capital.

Bottom line is, you should proceed in a strategic way to keep the level of loss lower, in case you incur any in your crypto leverage trading journey.  We will wind up with 3 major tops here-

  • Keep the level of leverage low so that you have to maintain a low margin
  • Make sure you will be able to refill the margin even it gets liquidated
  • Look for a crypto exchange that assures competitive interest rates
By John David

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