Leverage is the increased buying power that is available to margin account holders. Traders use leverage to increase the returns that can be provided on an investment. Traders/investors have to join a platform that allows margin trading and they should keep in mind that trading with leverage can generate much larger losses than traditional trading. Leverage is expressed as a ratio and allows you to enter larger positions than would be possible with your account funds alone. If you had $1,000 in your trading account with 3:1 leverage, you would be able to purchase $3,000 worth of cryptocurrencies. When we are talking about trading with leverage, a 20:1 leverage ratio means that the minimum margin requirement for the trader is 1/20 = 5%. This means that the trader is required to have at least 1/20 = 5% of the total amount of trade available as cash in the trading account. A 3:1 leverage ratio means that the minimum margin requirement for the trader is 1/3 = 33%, so trader is required to have at least 33% of the total amount of trade available as cash in the trading account. For example, to trade $10,000 of cryptocurrency, with a margin of 5%, the trader will only have to deposit $500 into his margin account. It’s not a good idea to hold a short position for long periods of time or to leave an open short position with no stop-loss order. Short term traders should always use “stop-loss” and “take profit” orders when they are opening their positions (the risk is extremely high). The ability to earn big profits by using a leverage is substantial but losses can also be very big and traders should always have this in mind.I would recommend everybody to use risk management techniques to limit losses for this type of trading with cryptocurrencies.
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