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I’m just trying to get my head around leverage in crypto as I’m getting more serious in the crypto markets.
I find Crypto markets more exciting and “thrilling” than the other two major markets, forex, and stocks.
Maybe one of the reasons I like Crypto more is, because it’s more “tech” related as I’m coming from an IT background, and I love Techie stuff.
And one of the other reasons why I find crypto exciting is leverage.
Leverage is simply amplifying your investment to a specific multiplication factor.
Another meaning is that you are able to borrow some capital from your crypto broker, and potentially profit from that increased investment.
And then when you close the trade in profit, you can keep your increased profits, after paying a little commission fee to your broker.
With more buying power, you, of course, have the potential to gain more profits, and also incur more losses, if your trade doesn’t work out profitably.
For example, in a traditional crypto trade, also known as “spot” trade in crypto, let’s say, you purchase £100 of bitcoin and the price goes up £200
You’ve made a gain of 100% and £100 profit.
Now let’s say, you carry out the same transaction with leverage of 10x. In this case, you’re £100 investment is now worth £1,000, so you can now buy £1,000 worth of Bitcoin instead of £100.
Your profit now would be 10 x 100 = £1000!
From the £1,000 profit, the commission fees vary between brokers, but typically it’s around 0.1 to 1% of the transaction.
To be honest, I’m happy paying a couple of dollars for the “facility” to trade on leverage as I don’t need to put up the full amount of investment.
Can you see how powerful and lucrative crypto trading opportunities could be now?
Now, before you get too excited and think, this could be a “get rich” opportunity, it is far from it, otherwise everyone would be a millionaire.
Being offered leverage features can also create a “gambling” effect if you trade with luck and no strategy, which is the worse way you can trade crypto.
Because, just like your amplified profit potential, if you have losing trades, the leverage features simply go against you, as you will incur the same level of losses!
That’s why trading with leverage should be done if you know what you’re doing.
So how do you get to the level of “you know what you’re doing”? It’s simple – education.
Just like any other industry and profession, it’s important to train and educate yourself to trade properly so that you can become a profitable trader in the long term.
So, before you use trade crypto on leverage, I would first, learn, test, practice, and become profitable in your “paper trading’ or demo accounts fist