Leveraging The Power Of Leverage – Margin Cryptocurrency Exchanges
Let us get to simple physics! If you want to move an object that is way heavier than your capacity, you take advantage of a lever. In a similar way, if you would like to trade at a position that is way more expensive than your capital, you can take advantage of leverage trading or Margin Cryptocurrency exchanges.
Leverage trading expands your possibilities and profits by opening up avenues that would have otherwise been inaccessible. In the below paragraphs, we have detailed the different aspects of a leverage cryptocurrency exchange, the way it works and the advantages brought about by it. We will also focus on the meticulous care that you need to exercise when you work with a leverage cryptocurrency exchange.
Table of Contents
- What is a Leverage crypto exchange?
- How does 100x leverage work?
- What to look out for before joining Leverage crypto exchanges?
- How do I buy Bitcoins with leverage?
- Comparison of Crypto Margin Trading Exchanges
- How is leverage calculated?
- Leverage Trading Benefits
As the name implies, a leverage cryptocurrency exchange is, in essence, a normal cryptocurrency exchange but with an added advantage of expanding your capital by a multiplier. Unlike the normal cryptocurrency exchanges that allow you to trade only with the capital that you possess, margin cryptocurrency exchanges or leverage cryptocurrency exchanges give you an opportunity to open up positions that are beyond the reach of your capital.
This means that a person who trades with a margin exchange has a possibility to multiply their profit by a considerable magnitude. However, it should be kept in mind that as much as there is a possibility for higher profits, there is also a possibility for you to lose the entire capital you have!
The leverage offered by these margin cryptocurrency exchanges is expressed in terms of a multiplier. These multipliers can vary from exchange to exchange, and it is the value that determines the ratio by which you can increase your position.
Some exchanges offer 2X leverage, and some of them offer a 10 X leverage. However, when it comes to the crypto world, 100 X is the most common leverage. It basically means that when you have a capital of about $20, you can multiply it by 100 times – it automatically raises your capital to $2000.
Leverage is a loan that you take from your exchange. For the sake of convenience, let us say the price of a bitcoin was $20 when you bought it and it has risen to $21. If you had traded with your capital, you would have made a profit of one dollar. However, if you were to use the leverage provided by the exchange, you end up making a profit of $100.
The exchange makes money on both commissions charged on your profit, and a small interest charged on the amount that you have taken as a loan from the exchange.
On the surface and by the proposition, leverage exchanges might look like an amazing idea. Who does not want to make money out of some money that does not belong to them, right? However, there are a few factors that you need to consider before you engage in trading with a leverage crypto exchange.
The first and foremost thing that you will need to look for in any leverage exchange is the magnitude of liquidity. Liquidity is the ease with which you can convert any assets into cash. In the context of exchange, liquidity refers to the trading volume. Even if you were to anticipate a positive movement, and if you do not have enough buyers, you might end up losing your leverage.
Another aspect that you will need to be uncompromising on when investing in a crypto exchange with margin is the feature to define limits. This ensures that you do not suffer unbearable losses. It is to be remembered that trading on a leveraged exchange is a high-risk game. Therefore, it is recommended that you use the usual and most common conversions like bitcoin and the United States dollar.
Buying bitcoin on a margin crypto exchange is almost similar to the way you buy it on a regular exchange. However, you will have to define your multiplier and your limit. It is known that exchanges reward traders who use the concept of limits in their exchange trade.
All you need to do is open a contract on the exchange interface and confirm your buying. Before you do that, it is essential that you define your leverage multiplier. It is highly recommended that, in an endeavor to minimize the possibilities of your losses, you start with a small capital and a small margin, for example, 2X and a capital of $50.
This will ensure that you, at the max, lose $50 and nothing more. You will only be able to trade for $100, but that is still a good starting point for you to understand the market and become professional as time and your experience grow.
Margin trading has become a feature of almost every exchange today, and it becomes important for any person, irrespective of their experience in trading, to compare multiple crypto exchanges. This will help them find out what would be the best one suited for their requirements. For some, it could be about maximizing risk and returns at the same time. For others, it could be about playing it safe without high gains and high loss. Some of them might be interested in trading within crypto, whereas some of them might want to trade between crypto and fiat.
In addition, there are quite a lot of factors like the percentage of interest levied on the exchange, the commission per trade, and the legality of operation that needs to be taken into consideration when choosing the best crypto leverage exchange for you.
ByBit is a margin exchange known for its incredibly low fees. With an incredibly low fee of 0.075%, they offer a 100 X leverage, and you can trade both in futures and derivatives.
Perhaps the biggest name when it comes to crypto exchanges is Binance. Incepted in China and headquartered in Malta right now, this exchange is known for its extreme versatility. It is one of the busiest exchanges, and it is known for its support for multiple coins, probably offering the widest range. In addition, the exchange also supports multiple payment methods. Just like any versatile exchange, it offers a 100 X leverage and charges about 0.1% of the taker fee.
Kraken, the sea monster, as we all know, is an exchange exclusive to the United States. The United States, being the biggest crypto market, can surely stand to benefit from this exchange. It also offers both futures and derivatives, and it takes a fee of 0.05% of the trade from the taker.
Blockchain App Factory, a renowned name in almost every avenue of crypto, has come up with its own white-label leverage exchange. This leverage exchange is flexible to be customized and fixed the leverage of your choice. This opens a wide range of opportunities for aspiring crypto entrepreneurs.
Another margin exchange that deserves mention here is BitMex. Many in the crypto community consider this exchange to be a legend in its own standard! It also takes a very low fee of 0.075% from the taker, and it supports 100 X leverage.
In simple financial terms, leverage is the ratio of the total company debt given to the shareholder and the shareholder equity. It has already been discussed that ‘leverage’ is expressed in terms of multipliers.
Therefore, when we say an exchange provides 100x leverage, it basically means that if a shareholder has equity of $1, they can now have access to positions that are worth $100. As a corollary, it can be concluded that the ratio of the debt to the equity is 100! This is how the concept of leverage works and is calculated.
Trading with leverage has its own set of benefits. The first and foremost of them all is that traders can now get access to positions that were once considered beyond their access.
It also helps investors diversify their portfolio, and as you all may have known, one of the most classic expressions in the world of investments is not to put all your eggs in one basket.
Leverage trading also opens up opportunities for short trading. Short trading is a convoluted form of trading where you sell an asset even before you buy it, and buy it later at a lower price. It helps to capitalize even on falling crypto asset prices.
Leverage trading or margin trading has now become an essential feature of almost every cryptocurrency exchange. It not only helps investors but also helps you grow your business because just like casinos when it comes to crypto exchanges, the house always wins!
If you are one of those aspiring entrepreneurs who would like to capitalize on this new wave of crypto business, all you need to do is get in touch with a company that specializes in crypto app development. You can also consider purchasing white label clones of leverage cryptocurrency exchanges.