Trading is not limited to normal buying and selling (spot), Rather, there are various trading methods for traders to increase their capital easily.
One of the trading methods is the use of leverage. The use of leverage in digital currency is very popular, because it allows traders to make significant profits in a short period of time.
But what is Leverage really? What are the benefits and risks of leveraged transactions?
In this article, we will learn how to trade leveraged digital currency, therefore, we invite you to continue reading including
- A look at the concept of leverage in digital currency
- What does leverage mean in trading?
- How does leverage work?
- Comparison of leveraged transactions with non-leveraged transactions
- In which markets can leveraged transactions be used?
- 1- Cryptocurrency market
- 2- Global forex market
- 3- Goods market
- 4- Option tradings
- What are the benefits and risks of using Leverage?
- Advantages of leveraged transactions
- The risk of leveraged transactions
- For which traders are leveraged transactions suitable?
- Principled use of leveraged trades for permanent profit
A look at the concept of leverage in digital currency
Leverage is a factor that can be used to increase the amount deposited in the transaction. Leverage increases the profit and loss from the transaction, so you should know the rules of using it well.
What does leverage mean in trading?
Leveraged trades are a powerful tool for you to use properly to increase your capital easily. The meaning of leverage in transactions is to use the credit of the exchange and borrow from it to earn more profit.
Leverage is used in margin and futures trading and provides the opportunity for investors to make profits sooner.
For example, if you have $10 capital, trading without leverage will bring you little profit. But if you enter this 10 dollars into leveraged transactions, the exchange in question will give you an amount called a loan to trade with.
For example, when you enter 10 dollars into a transaction with 10 leverage, your capital will be 100 dollars and your profit margin will increase.
Note: Be careful that if you can guess the correct trend of the market, you can make more profit by doing long (rising) or short (falling) trades.
How does leverage work?
Leverage works by using the amount you invest in the exchange. Leverage is used in margin and futures trading and its purpose is to access more profit in a short time.
When you use leverage, the exchange lends you an amount called leverage. You enter the transaction as much as you have capital, but the profit you get is calculated based on the current amount borrowed from the exchange.
In other words, using margin trading allows you to kill two birds with one stone. You put a small amount into the trade and in return you get more profit by borrowing from the exchange.
In exchange for the money it lends to you, the exchange deducts a fee from your profit after the end of each transaction.
For example, suppose you want to buy 1,000 Cardano currencies and the price of each Cardano is $0.5. You need $500 in capital to do this transaction in normal or spot mode. Meanwhile, you only need 50 dollars to buy this amount of Cardano in the futures transaction with Leverage 10.
Comparison of leveraged transactions with non-leveraged transactions
Leveraged and non-leveraged trading are two completely different concepts that have their own fans. In non-leveraged trading, you can trade only in the upward trend of the market and with your real capital.
Therefore, the amount of profit and loss you will have is compared to your capital and it is less risky.
But leveraged trading is completely different, that is, you can trade with a small capital and get a very good profit. Leverage trades are high risk and allow you to profit in both bullish and bearish markets.
Proper use of leverage in digital currency is the smartest decision a trader can make.
In which markets can leveraged transactions be used?
Leveraged trading is one of the most common trading methods used in various markets. Knowing these markets will help you to achieve significant profit using leverage. Markets that support leveraged trading include:
1- Cryptocurrency market
One of the platforms that supports leverage is the digital currency financial market. Leverage is very popular in digital currency and allows you to make profitable trades. In this market, you can trade all kinds of digital currencies with low or high leverage.
2- Global forex market
Another popular market that has many fans is the forex market. In the forex market, you can use leveraged trading and trade different stocks.
3- Goods market
In this market, you can trade more than 35 different commodities, including gold, oil, silver, etc. with different coefficients.
4- Option tradings
This type of trading has a high risk and is done on the Binance exchange. In option trading, traders can trade assets at a specified price at a specified time.
What are the benefits and risks of using Leverage?
When it comes to leveraged trading, the only thing that matters is the profit made through it.
But the reality is not like this because leveraged transactions have their own benefits and risks. By knowing the advantages and risks of leveraged trading, you can participate in these transactions with a more open view and avoid big losses.
Advantages of leveraged transactions
Leverage trades will bring many benefits to traders due to their trend. Taking advantage of these benefits has made traders more willing to participate in leveraged trading.
In general, the most important advantages of these transactions are:
- Brings high profits: When you are in control of the market and have little capital, using leveraged trading will be a good option for making profits. With the help of this type of transactions, you can achieve large profits in a short period of time.
- They have 24-hour trading capability: like other transactions, you can enter leveraged transactions and earn money at any hour of the day or night.
- You can trade in both market trends: the capital market does not always have an upward trend and it will fall in different intervals. Leveraged trading allows you to profit from both bullish and bearish markets.
The risk of leveraged transactions
In addition to many benefits, leveraged transactions also have risks and dangers. The existence of these risks makes some people not go for leveraged transactions. The most important risks of leveraged transactions are:
- Causes Liquidity: When the market does not go according to your analysis and a negative direction comes for your target currency, it can be quite dangerous. In such a situation, if you have not set a loss limit or stop loss for your transaction, it will lead to liquidation or the loss of the entire capital that you entered into the transaction.
- Increases your loss: Leverage will increase your losses as much as it increases your profit from the trade. Depending on the leverage you have chosen, the probability of your loss will also increase.
- It brings a lot of stress: The digital currency market is full of volatility and when you get into leveraged trading, you subconsciously get stressed. Of course, if you are in control of the market and have determined the limit of profit and loss, no stress will threaten you.
For which traders are leveraged transactions suitable?
Leveraged trades are high-risk, high-profit trades that are not suitable for all traders. By doing these transactions, you can achieve more profits in a short period of time with little capital.
In general, participating in these transactions is suitable for traders who have the following conditions:
Have full knowledge of leveraged transactions
The first necessary condition for participating in these transactions is to have sufficient information about how to carry out leveraged transactions, apply profit and loss limits, and prevent liquidity.
With this information, you can easily enter leveraged trades and close your trades with profit.
Have the ability to analyze market trends
Undoubtedly, the ability to accurately analyze the market is one of the requirements of trading. For spot trading, this is not a big risk because you can avoid big losses by averaging out.
But in leveraged transactions, you should not enter into a transaction without careful analysis, because instead of making a profit, it will cause liquidation and loss of capital.
Be familiar with the principles of capital management
Capital management is one of the most important rules and principles that traders must learn. Due to the high risk of leveraged transactions, you must be familiar with the principles of capital management and be able to manage your transactions well.
Be careful that a large part of your capital should go to spot transactions and only 20% of it into leveraged transactions.
Be a risk taker
We have emphasized this issue many times that leveraged transactions have a lot of risk, We say again. Therefore, you should be able to bear the profit or loss within a few seconds because the market has a lot of fluctuations.
So, if you are a risk taker and have the ability to do these transactions, you can enter these transactions right now.
Principled use of leveraged trades for permanent profit
In this article, we examined what leverage is and what leverage means in digital currency. These high-profit transactions may destroy the capital of traders.
Therefore, if you want to have permanent profit and enjoy trading, you should not use high amounts of money. Because this increases transaction risk and activates liquidity (loss of capital).
So, with the basic use of leveraged transactions and low amounts, you can achieve your desired profit in any capital market you are active in.