Cryptocurrency trading includes many tools, allowing people to generate income in an unstable and fluctuating market. One of the most common instruments is leverage. The idea of this tool is to borrow money from an exchange. The ratio of leverage is selected by the ratio, which may be 1:2, 1:10, 1:50, etc., depending on the platform you work with. That may be up to a 100X ratio.
Ratio means the number of times your real amount is multiplied. For instance, if you use a 1:10 ratio, your initial investment is multiplied by 10. That is, if you have $100, you may buy coin crypto worth $100×5 or $100×10, or 20, 50, etc. In such a way, your entering positions in the trade look much more profitable and may bring you a much bigger profit.
Every crypto exchange offers different leverage ratios for different pairs of cryptocurrencies.
How To Start?
To begin with this type of trading, you need to determine how much money you need to put in. Suppose you want to enter with $10000, but you have only $2000 worth of bitcoins. So you need to take a 1:5 leverage ratio. $2000 will be collateral.
Leverage can be applied to earn on both growing and declining markets:
- A long position means you expect the rate to grow, and you will sell coins;
- A short position means you think the value will fall, and you will buy coins at a low rate.
Advantages & Disadvantages:
- Leverage allows for handling risks. Use a small leverage ratio and the stop-loss and take-profit programs to protect yourself from the liquidation of your trade. Those programs will automatically exit the position when it is time to leave without complex consequences.
- Big leverage contributes to making enormous money but does not leave room for mistakes.
- If the rate moves in a direction you did not expect, your trade will be liquidated, and it may happen that you will owe more money than you deposit, so be careful.
How To Learn To Trade Cryptocurrency?
An excellent idea would be to register on the WhiteBIT cryptocurrency trading platform, which provides a demo account to experiment with different leverage ratios and understand how this method works. Demo tokens cannot be liquidated, and you cannot earn them. However, you can see possible income and damage correlation depending on your chosen ratio.
Demo trading will help you handle all the instruments proposed on WhiteBIT and face different unexpected situations and find better solutions from them without the fear of losing real money. It is also a good way to find out your ideal style – whether you prefer to retain coins or act and trade daily.