Understanding Leverage & How it Works in Crypto Trading

Understanding Leverage & How it Works in Crypto Trading

When it comes to trading, words like ‘leverage’ or ‘margin trade’ aren’t thrown around like buzzwords. But they’re much more than that. They’re key tenets of the trading experience. Therefore, if you want to understand trading, it is important to understand what leverage is all about and how it is used.

The word 'leverage' refers to the amount by which a trader’s position is boosted. Leverage is described as funds which are borrowed in order to increase a trader's size and market visibility, as well as his or her profitability. The proportion between both the sum of money in the trading account and the money one gets enabled to exchange with is known as leverage.

Margin Trading is a form of trading that enables traders to increase their exposure to a particular asset by borrowing money from other traders or the exchange itself. Unlike typical trading, where traders use their own money to finance transactions, margin trading allows traders to increase the amount of assets they can trade.

How Leverage Affects and Works in Crypto Trading

Bitcoin leverage trading helps you to take larger positions and earn more with your capital. You can also manage 10 to even 100 times the amount needed to open the mark. For example, you may have $100, but will be able to take a position worth $10,000 by borrowing the rest!

How does this happen, exactly?

When trading crypto derivatives, traders typically lend extra funds from an exchange or a broker to swap underlying securities with the preferred exposure. This implies you can now get leverage on money you already have. Leverage, also known as margin trading, allows you to open a trading place with more money.

Margin trading is common in slow-moving, low-volatility sectors like the Forex market, but it has exploded in popularity in the rapidly cryptocurrency market, especially the crypto derivatives market.

To margin trade, a trader should make an initial deposit to start a position, known as the "initial margin," and retain the position with a certain amount of capital in their account, known as the "maintenance margin." Traders that use margin trading with leverage will open long and short positions allowing them to benefit from both rising and falling markets.

If a margin trader uses 150x leverage, for instance, their exposure and possible benefit would be multiplied by 150x. If you were going to make a profit of $10 with $100 in capital, you would now make a profit of $1500, since you are now trading with $15000 inclusive of the borrowed funds.

The amount of leverage offered by different cryptocurrency exchanges varies. The sum of capital you deposit to start a margin trade with a cryptocurrency exchange is kept as collateral by the exchange. The volume of leverage you can use when margin trading in crypto is determined by the guidelines of the crypto exchange you trade on as well as your initial margin.

Selecting Right Trading Platform

Picking the right Bitcoin leverage trading platform can be challenging because there are so many cryptocurrency exchanges offering leveraged trading these days. Trading on a crypto derivatives exchange with the maximum leverage isn't always the top pick.

When considering a crypto exchange for margin trading, there are several key attributes to remember. One important aspect to consider when looking for the best crypto trading exchange is the trading fees provided by leveraged trading.

Disadvantages of Leverage in Crypto Trading

Leverage has its share of risks in the world of crypto trading that traders need to be aware of.

Liquidation Risk

If the market makes a big enough move against one's position, one could lose the complete initial margin. Liquidation is when you lose all of your first margin.

Leverage works in crypto trading by increasing one's exposure to a specific asset above the amount of the investment. This means that along with profits, losses can be amplified if you’re not careful.

Since an exchange must protect its funds, your position can get closed if your losses are  beyond  a certain level.

Risk Management in Crypto Leverage Trading

One may get liquidated or easily expelled from their crypto position, if the trade gets directed towards the wrong path therefore it’s important to use some great risk management strategies such as monitoring the market and diversifying the portfolio.

A proper effective risk management strategy to develop and implement is suggested to any trader who is into crypto trading, making sure it has a precisely defined set of goals that has to be attained.  

Make sure these are led by mind and logics instead of intuitive energies. These strategies can help in preventing many losses and handling risks quite simply, leading to more number of wins than losses.


If used right, leverage in crypto trading could be a real boon, and it plays a key role in the approaches of most serious crypto traders around the world.

Leverage trading can bring the fuel needed to maximize your investment capital and take your crypto trading to the next level with the right mindset toward risk and a rational way towards diversification of your portfolio.