Trading with Leverage

What you’ll learn

• What is leveraged trading
• An example leveraged trade
• Leveraged tokens
• The risks of leveraged trading

Trading cryptocurrency involves risk. There is no way to sugar-coat that message. Its riskiness is actually what attracts a lot of traders. Prices move significant amounts over very short periods of time, and traders see that volatility as an opportunity.

What is leveraged trading?Borrowing money to multiply the potential gains or losses of traders by up to x100

Take February the 8th, 2021 as an example. Elon Musk tweeted that Tesla had invested $1.5bn in Bitcoin, and the price increased by almost $8,000 in one day. From a low of $38k, that represents a 20% increase.

The event triggered gains in alt-coins which actually made 20% seem quite modest. Wild swings with the potential for huge trading gains can be very seductive, but though cryptocurrency is volatile, the Tesla inspired spike isn’t the norm. 

There is however a way to trade which amplifies volatility, magnifying both potential gains as well as losses – so every day would be as dramatic as February 8th. It is called leverage.

Before we explain what leverage is, and how it works, it is crucial to understand that trading with leverage is like driving a high performance sports car. It can be exhilarating, but one mistake can spell disaster. So to extend the analogy, if you are just learning to drive (trade), you shouldn’t be using leverage, but sticking to a Prius..