What is Leverage in Crypto Trading?
With Tradu you can trade crypto via CFDs.
Leverage trading in crypto can help you access greater profits with less upfront capital. However, it can also magnify losses, so properly understanding how crypto leverage trading works is vital.
Read on to find out more about how you can use leverage in crypto trading and examples of what it looks like.
- Leverage trading in crypto explained
- Leverage trading with crypto CFDs
- How does crypto leverage trading work?
- The benefits of leverage trading crypto
- What to consider when leverage trading crypto
- Managing risk when leverage trading crypto
- Start leverage trading crypto with Tradu
Leverage trading in crypto explained
When you make any trade with leverage, be it in crypto or another asset class, you are essentially borrowing money from a provider to complete the deal.
This magnifies your total position and can have a matching effect on both your potential profits and any losses you incur.
Leverage is typically described as a ratio. With Tradu you can trade crypto with leverage up to 1:2.
You can trade crypto with leverage on the Tradu platform with contracts for difference – or CFDs for short.
Our in-depth leverage trading guide includes more handy information and definitions.
Leverage trading with crypto CFDs
When you sign up for a Tradu trading account, you can speculate on the fortunes of major cryptocurrencies such as Bitcoin and Ether through CFDs.
Once you have selected a crypto to trade, you can choose to either go long or short. A long position ('buy') indicates that you expect the crypto to rise in value. You would take a short position ('sell') if you predict a fall in its price.
The next step is to set your margin, and this is where leverage comes in. Your margin is the amount that you will pay to enter the trade – the rest is made up by the broker.
You will never own any cryptocurrency when you trade CFDs with Tradu.
Get a full rundown of how CFDs work in our handy guide.
How does crypto leverage trading work?
This is how the numbers could look in a leveraged Bitcoin trade. We'll look at an example that experiences both profit and loss.
- The trade: You take a long position worth $20,000 on Bitcoin at 1:4 leverage and commit $5,000 margin to the trade.
- Profit: Bitcoin's price rises by 10% and you close your trade with a profit of $2,000, a healthy 40% of your original capital.
- Loss: Bitcoin's price suddenly falls by 25%, but you lose 100% of your capital. This would trigger a margin call, giving you the chance to either deposit additional funds or close the trade.
The benefits of leverage trading crypto
- Maximise profits: If your trading strategy is a success, you can earn greater profits through leverage.
- No crypto wallets: As you won't own any of the underlying currency, there is less risk to your online security.
- Lower upfront capital: Get started with smaller deposits and still access large-scale trade values.
- Diversify your positions: With more free capital, you can hedge your position or execute a trade in a separate market.
What to consider when leverage trading crypto
- Increased risk: You can quickly lose all your capital, and potentially more, if markets move against you.
- Difficult to master: Newcomers to crypto trading are more likely to suffer large losses when trading with leverage.
- Long-term charges: Fees will apply if you want to keep a leveraged position open overnight.
Managing risk when leverage trading crypto
Your risk appetite and how you manage it is a key consideration when making any investment. However, it is especially important in a leveraged crypto trade where your fortunes can fluctuate at rapid speed.
Using leverage to trade crypto opens you up to the possibility of substantial losses, but there are ways to limit your risk and loss-making potential.
- Stop-loss orders: You can automatically set your position to close once your losses have reached a certain point. Ensure that this figure is an amount you are comfortable losing.
- Take-profit orders: You can also limit your trade in the opposite direction and close it once profits have reached a certain level. Crypto trading is highly volatile, and this can help you lock in profit before markets turn against you.
- Set margin limits: By limiting the amount of money you will commit to each trade, you can ensure that your losses will not exceed what you can afford.
Start leverage trading crypto with Tradu
If you can find a profitable strategy, trading crypto with leverage will magnify your returns. Be mindful, leverage can also amplify losses. Here's how you can get started today.
- Get on board: Create a Tradu trading account in minutes with our quick and easy sign-up process.
- Get clued up: Browse our market, trading and platform guides to learn the ropes before you make your first trade.
- Get your strategy set: Pick your cryptocurrency and decide on your position – long or short.
- Get your first position in place: Our intuitive platform lets you lock in your position in seconds.
- Get out when the time is right: Analyse your trade's performance manually or take advantage of our automated stop orders. We make it easy for you to cut your losses or bank your profits.
- Get a taste of other markets: You may be able to apply your leveraged crypto trading strategies to forex, stocks, commodities and indices. Build a fully diversified portfolio from one single account with Tradu.
Find out more about crypto and other trading markets
If you want to delve further into the world of crypto trading with leverage, our library of how-to guides has all the information you need.
The information in this article is for educational purposes only.