Leveraged trading in crypto refers to the use of borrowed funds to make trades. This type of trading can increase your buying or selling power, allowing you to trade more significant quantities. While this trading method may increase your chances of profit, it also comes with risks. As the market is volatile leveraged trading can also lead to losses if the market moves in the opposite direction.
How does it pertain to crypto trading?
As we explained above, this form of trading refers to using borrowed funds and, in that way, make trades. Leverage has various crypto derivatives. Margin trading, leveraged tokens, and futures contracts are examples of leveraged trade.
Before the process of borrowing funds, you need to have funds in your trading account. The initial amount the trader provides is known as the collateral. The collateral that is required depends on the leverage you are planning to use. It also depends on the margin, the term used for the total value.
In addition to the initial margin deposit, you must maintain a margin threshold for your trades. When the market moves against your position, and the margin falls below the maintenance limit, you must deposit additional money into your account to prevent liquidation. The maintenance margin is another name for the threshold.
Trading with leverage opens more doors for traders. It allows you to purchase or sell assets based only on your collateral rather than your holdings. So, even if you don’t own an asset, you may borrow one and sell it if you believe the market will fall.
This trading method allows traders to start slow with a lower initial investment, however having potential for significant gains. Leverage and volatility combined can cause liquidation. Therefore, you need to be cautious, take things into perspective and evaluate the risks involved with leveraged trading.
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