Leverage trading allows crypto traders to open larger positions than they could with their existing capital. Essentially, leverage multiplies your buying power, enabling you to put on bigger trades. With the high volatility seen in crypto markets, leverage provides an opportunity to realize larger gains – but it also significantly increases risks.
How Leverage Trading Differs from Trading Without Leverage
When trading crypto without leverage, your position size is limited to the actual capital you have available. For example, if you have $1,000 in your account, the maximum amount you can buy is $1,000 worth of cryptocurrency.
With leverage, you are essentially borrowing additional capital from the exchange to increase your trade size. A 2x leverage would double your buying power, so instead of trading with $1,000, you could trade with $2,000. A 5x leverage multiplies it five times, meaning you could control a $5,000 position while still only putting up $1,000 of your own money.
The larger position sizes allowable with leverage mean a trader can realize bigger gains compared to trading without leverage. However, the risk is also much higher.
Available Leverage Levels
Crypto exchanges offer different maximum leverage amounts, some up to 100x or even higher. That means with $1,000 in your account, you could potentially trade with $100,000 using 100x leverage from the exchange.
Among the popular exchanges, Binance offers up to 125x, BitMEX offers 100x, and ByBit has up to 150x leverage available. Of course, just because an exchange offers very high leverage does not necessarily mean it should be utilized to the maximum.
Higher Leverage Comes With Substantial Risk
The higher the leverage used, the greater the risk involved. At 100x leverage, just a 1% market move against your position would wipe out all of your capital. And liquidations can happen quickly with large leveraged positions.
So while leverage provides the ability to realize bigger gains, use it judiciously and based on your risk tolerance. The volatility of crypto means positions can be wiped out just as fast, if not faster, than large gains materializing. Margin calls and forced liquidations are an ever-present risk with high levels of leverage.
In summary, leverage allows crypto traders to put on much larger positions than they could through trading alone. But with bigger potential rewards comes substantially higher risk. Manage risk accordingly when leverage trading.