Many consider this is the path of an experienced crypto trader: spot trading, trading with leverage, and Bitcoin futures trading. Let’s take a look at the second level of your game: crypto trading with leverage.
What is leveraged Bitcoin trading?
You’ve been following a few coins for at least three years now, you’re in control of your luck, (meaning you don’t believe in luck), you spend hours doing fundamental and technical analysis and you can afford to lose a certain amount of money. You’re ready for leveraged Bitcoin trading, but what is this exactly?
Definition: Leveraged Bitcoin trading is a kind of trading where you borrow Bitcoin from a crypto exchange or other traders to increase your trading position beyond what would be available from your cash balance alone. You should keep in mind that leverage will also multiply the potential downside risks in case the crypto coin of your choice goes down.
Example: Say, you want to buy two BTC that cost $10K each, but you’ve only got enough money for one Bitcoin. You go with the 2X leverage and buy two Bitcoins. After some time, the price of the coin goes up 10%, meaning that you have now earned $20K + 10%, or $22K. You return $10K to the exchange, extract fees from your earned $2K, and these are your earnings. Without the leverage trading feature, your earnings would be half as much.
On the other hand, if the market goes in the wrong direction, and Bitcoin’s price goes down to $7K, the overall price of your funds is now $14K, but you still have to pay back $10K to the exchange. The bad news is you’ve lost $6K of your own funds. That’s why leverage trading is dangerous.
In other words, leverage is a ratio between the position value and the investment needed and can be expressed as 2X, 3X,10X etc. In the stock market, 2:1 is an often-case ratio, while futures contracts are often traded at a 15:1 leverage. In the forex markets, traders can get much higher leverages, up to 400X. The ultimate maximum leverage in the crypto niche is 100X offered by BitMEX.
That said, cryptocurrency leverage trading gives you a chance to trade larger amounts of tokens than you could have done solely with your funds. Depending on the leverage options of the crypto exchange and collateral requirements, you can trade bigger or smaller amounts of money.
Crypto exchanges with leverage
There are several crypto exchanges out there that offer you to leverage Bitcoin and other cryptocurrencies. We’ve chosen the platforms with the highest number of video tutorials on YouTube, so that if you like the platform, you can go and learn more about it.
With this peer-to-peer trading platform, leverage is not a fixed multiplier but rather a minimum equity requirement. The Initial Margin and Maintenance Margin levels determine your leverage. They specify the minimum equity you must hold in your account to enter and maintain positions.
The highest leverage BitMEX offers is up to 100X on its Perpetual Bitcoin / USD Perpetual Contract.
The fees for leverage trading on top of BitMEX are quite high and apply to the entire leveraged position.
The maker fee for trading Bitcoin, Ethereum, and Ripple with the 100X leverage is 0.0250%, while the taker fee is 0.0750%.
With PrimeXBT, the exchange provides you with the funds to trade with increased exposure. You can trade Bitcoin, Ethereum and other coins without tying up lots of capital.
The highest leverage PrimeXBT offers is up to 100X leverage on Bitcoin, Ethereum and a few other major alts.
The fees for leverage trading on top of PrimeXBT are flat. As the exchange reports on their website, the borrowing cost depends on the liquidity of the underlying asset. If you open and close a leveraged position within the same trading day, you are not subject to overnight financing.
The trade fee is 0.05%, plus you also pay a day-long or a day-short fee, for example, 0.4166% for BTC/USD.
Bybit is a peer-to-peer crypto exchange that allows you to engage in leveraged trading with Bitcoin, Ethereum, EOS and Ripple.
The highest leverage Bybit offers is 100X, which means that if you opened the position for $100 with the 100X leverage, you would be able to trade a contract value of 10,000 USD.
According to their website, you will need to pay a maker fee of 0.025% and a taker fee of 0.075% for the highest leverage of 100X with this exchange.
One of the largest cryptocurrency exchanges in terms of trading volume, Binance launched its margin trading feature in July 2019. The exchange lends you funds directly, which is different from the p2p model on BitMEX, for example.
Right now there are 29 borrowable cryptocurrencies, and you can raise your maximum leverage from 3x to 5x if your total debt is less than one Bitcoin, and your margin level is more than 1.25. The latter is calculated by taking total asset value and dividing by the sum of total borrowed and total accrued interest.
Also, on top of Binance Futures, you can trade derivatives with a maximum of 125X. The available pairs include but are not limited to BTC/USDT, ETH/USDT, BCH/USDT.
Your trading fees depend on your tier level. For example, with the spot trading platform and the number of Bitcoins less than 50, your maker/taker fees are 0.1%. As for derivatives, with the zero tier level and the number of Bitcoin contracts less than 250, your maker/taker fees will be 0.02 and 0.04%, respectively.
Long story short
Leveraged Bitcoin trading is a risky venture that you should only try if you feel like you’ve got enough experience.
While giving you a chance to trade with more money than you have, it also exposes you to greater risks if the market doesn’t go into your direction.
If you’re interested in crypto trading with leverage on a certain platform, carefully read each platform’s blog before giving leverage trading a shot.
While progressing as a trader, you will most likely go through some stages: automated spot trading with TradeSanta, leveraged trading, and Bitcoin futures trading.