Trading 101: What Is Leverage Trading?
This article is designed to help you get acquainted with leverage trading and incorporate it thoughtfully into your strategies.
Trading And Trading Futures On Cryptocurrencies
With cryptocurrencies being recognised as the emerging asset class, more people have the desire to own and trade Bitcoin, Ethereum as well as other tokens. There are as many trading options in this market as in traditional finance, from spot to derivatives trading, margin trading, and leverage trading.
It’s important to check out our Trading 101 Series to get a good grasp of the trading basics:
In the simplest terms, trading is the act of buying and selling of any item or asset. If the asset to be traded is a cryptocurrency itself, the trader would use the capital at hand to acquire the ownership of that cryptocurrency at market value in the corresponding value - a process called spot trading. If the trader decides that he/she only wants to benefit from the crypto’s price changes, he/she can opt for trading futures on digital assets. The crypto derivatives market has been expanding exponentially over the last five years, with both traditional and crypto-native platforms joining the space. Some big names to be mentioned include CME, Deribit, Binance and Bitget.
How Can Leverage Be Of Great Service
Criticisms about futures trading centred mostly on the fact that they are highly leveraged instruments. However, as mentioned above, traders need to participate in these markets in a mindful and responsible manner to avoid less favourable outcomes.
Two concepts all futures traders must encounter are margin and leverage. Margin is the amount of capital traders are required to deposit into their margin account before opening a new position. With collaterals as proof of traders’ ability to honour their contract obligations, they can exploit the borrowed capital, a.k.a leverage, from exchanges to undertake a new investment.
It can be inferred therefrom that leverage is the strategy of borrowing money from another party to invest in something that is supposed to generate attractive returns. This example should explain the concept properly: Assume that Peter has $100 and he wants to long Bitcoin, i.e. bet that BTC price will go up. The current BTC price is $24,000, therefore his position of no leverage (1X) can only be $100 or 0.004 BTC ($100 divided by $24,000). Peter wants to close his position (sell his futures contracts) when BTC price hits $25,000, meaning the expected profit should come in at 4% ($25,000 / $24,000), which is equivalent to $4.17.
If Peter goes to Bitget USDT-Ⓜ Futures and opens a position of 125X leverage on Bitcoin, his position value would now be: $100 * 125 = $12,500 or 0.52 BTC. At $25,000 BTC, his profit would be: $12,500 * 4% = $520.83. We can see that Peter’s expected profit could increase by 125 times the original one, should he use the maximum leverage level.
This strategy has long been adopted by so many traders so as to amplify their returns. It is worth noting, however, that it can work both ways. While our guide to risk management and responsible trading will provide you with the necessary information to build a strong, risk-resistant portfolio, taking advantage of leverage can potentially and conveniently boost one’s returns.
Margin requirements and leverage levels vary between exchanges, but rules remain the same: the lower the volatility of the underlying, the higher the leverage available for its futures contracts. Our Trading 101 section also covers the topic of margin trading here.
Crypto Futures Trading with Bitget
Launched in 2018, Bitget is now the dominating crypto derivatives trading platform with multiple innovative products. The three pillars of our customer orientation are integrity, transparency, and the preservation of a true “win-win” environment for all parties involved. We also strive for an inclusive product design so that every user can find their own solution to crypto futures trading on Bitget: Bitget USDT-Ⓜ Futures and Bitget USDC-Ⓜ Futures for cautious traders, Bitget Coin-Ⓜ Futures for crypto-geeks and Bitget Copy Trade for those who want to generate a passive income stream with minimum risk. In addition, we have recently launched Bitget One-Way Mode for TradFi veterans and the innovative Bitget Index Futures to help our users manage their portfolio more efficiently (time and cost-wise).
Activities and Liquidity
Our efforts have resulted in a huge customer base of 8 million users from 100 countries and regions worldwide. In terms of scale, Bitget is indeed the world’s largest digital copy trading exchange, where over 80,000 professional traders have shared a total of US$20 million in profits. Bitget is acknowledged as the Top 3 Crypto Derivatives Exchange in terms of Liquidity by TokenInsight.
A Social Network for Crypto Derivatives Trading
To encourage crypto derivatives trading, Bitget has constantly improved our copy trade system, known as Bitget One-Click Copy Trade. The trader network of Bitget consists of experienced traders and followers, with the former mapping out a comprehensive trading strategy so that the latter can make profit just by initiating identical orders. Our design philosophy motivates the entire network to look out for each other in terms of profit maximisation.
Bitget users can increase their returns with the use of leverage. Bitcoin has the highest leverage of 125X; other volatile assets will have lower leverage levels to reduce traders’ exposure to extreme price movements.
At the same time, we strictly demand that users comply with our margin requirements and introduce risk margin to help users better resist liquidation risks. One more unique feature of Bitget is profits and losses are settled on a real-time basis, representing our guarantee for a sophisticated, accurate data system. Traders will be able to manage their account commensurate with the market, thus always in the process of improving their trading knowledge and skills.
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