Leverage allows you to trade digital assets on the exchange even with a minimum starting capital. The mechanism is popular, but it is risky.

Leverage is a brokerage service that can be obtained on a cryptocurrency exchange. Since in fact we are talking about a loan in the form of a cryptocurrency, which the trader sends to futures transactions. As a result, the leverage is usually a multiple of the size of the trader’s deposit by 10, 20 or more times.

To use this mechanism effectively, you must first learn what futures are on a cryptocurrency exchange.

What is leverage in futures margin trading?

 

The essence of transactions using leverage is to conclude transactions for the purchase or sale of digital assets using borrowed coins (or fiat currencies). The deposit that the trader will need for this is the basis of margin trading. Therefore, the cryptocurrency exchange broker notifies in advance of the minimum allowable deposit amount, which will be accepted as collateral.

As a result, it will not be possible to use brokerage services with a zero balance on the futures wallet, since this money must be transferred to the account in advance. The return of borrowed funds is carried out with interest.

Let’s assume that the broker’s leverage is 1:100. If there are, for example, 10 bitcoins in the futures account, then the trader will be able to count on a loan in the amount of 1000 BTC.

What is leverage, its pros and cons

The use of borrowed funds is an affordable tool because it is suitable for those who do not yet have enough own funds for large-scale operations. As a result, using the forecasts of experts who predict the future of cryptocurrencies, there is a chance to quickly earn a large amount.

The advantages of such a mechanism for futures trading in digital assets include:

  • availability of borrowed funds;
  • easy access to large transactions with a minimum deposit;
  • the ability to bet on amounts many times greater than the real financial possibilities.

Among the minuses:

  • the probability of a high return is balanced by an equally high risk;
  • difficult to learn how to manage capital;
  • the need to monitor stock quotes more closely, as this is a risky trading strategy.

A good way to evaluate your own capabilities is with a demo account, as it is available to beginners on many exchanges. Only by practical means can one acquire the experience that is indispensable for real operations on the cryptocurrency platform. Next, it is recommended to move on to learning the basics of how to trade with leverage