Considered a magic tool to multiply your investments by many, here is the beginner's guide to leverage trading in crypto with a list of best platforms you can try out as a newbie!
What Is Leverage in Crypto?
Leverage can be explained in two ways. Firstly, to put it simply, leverage is a position size multiplier. It allows you to have a $5,000 position, with only 500 dollars. When I first learned about this, I thought leverage would be the golden ticket to infinite riches, superyachts and Lamborghinis.
Imagine you have a position of $10,000 USD, with $1,000 in equity (often referred to as margin). Here, the position is leveraged 10 times which means that the position is 10 times larger than the margin. Because profits are made on the entire position size, a 1% move on the position is $100, which is 10% of your equity or margin.
To come back to the simple explanation, if you use leverage without any additional risk management, it does indeed amplify your position size, but the percentage of moves too. You risk being forced to sell (liquidation). In spot trading, this risk does not exist, but you are limited to your capital alone.
You may also check out our guide on spot trading vs margin trading!
In essence, leverage can be a great tool to add to your portfolio, but only after you have demonstrated a solid understanding of risk management, and some track record in spot trading. If used by inexperienced traders, leverage can wipe out your entire portfolio in mere minutes.
Let’s assume you are ready to trade with leverage, what are the best platforms to do this?
Best Crypto Leverage Trading Platforms
With hundreds of leverage trading platforms out there, it can be daunting to select the exchange for you. I’ll briefly cover a few exchanges I think are excellent and highlight some key differences between the two.
Another great exchange for leverage trading is FTX. As one of the newer exchanges on the block, they have quickly risen to become a major player.
In the Asian demographic, OKX (formerly known as OKEx) is dominant. The second largest exchange globally by volume has fees comparable to Binance. If you are trading in the Asian session (when that part of the world is awake), this might be the place for you.
If you prefer to trade on your mobile phone, ByBit is the way to go. Fees are steeper than most other platforms, but the convenience of a smooth mobile application may be worth your while.
Finally, an exchange to watch is Delta Exchange. I have personally used Delta over the past year and have seen the experience improve tremendously. While I don’t think they’re at the level of Binance or FTX just yet. However, if the improvements continue, there is nothing holding them back from getting there.
Risk management is a must have if you want to open the leverage box. To put it into a nice analogy, leverage is like a nuclear power plant - highly powerful and perfectly safe if you keep it in check. However, if you don’t pay attention to what you are doing, the consequences can be disastrous. If you have a solid plan, stick to it and manage your risks!
As usual, please remember this article is based on my own experiences in trading, and it does not constitute financial advice. Do your research, try new things out and let’s continue to make some money.