Trading with leverage is surprisingly simple for something that is so risky, but some exchanges have actually simplified the concept even further by creating leveraged tokens.
A leveraged token is just another way of amplifying risk but without having to provide collateral or consider margin levels. The price movement is simply magnified at an agreed level or range, and built into a new synthetic token version of an existing cryptocurrency..
Taking Binance Leveraged Tokens as an example they offer BTC UP and BTC DOWN leveraged tokens. If you buy BTC UP (x4) then you are essentially amplifying the percentage increase in Bitcoin’s price by 4:1; this is simply built into the way the BTC UP token functions.
The leverage isn’t however constant, but instead targets a leverage range from between x1.25 and x4; as Bitcoin’s price increases the leverage increases, then declines when the reverse is true in order to try to minimise liquidation. The reverse is true if you want to buy BTC DOWN.
Neither of the tokens can be withdrawn from Binance as they aren’t intended as anything but a trading derivative. On their own, leverage tokens would generally be used in short-term spot trading strategies, but could be held for longer as part of a more complex trading strategy hedging other positions e.g futures or options.
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