The Role of Leverage in Cryptocurrency Futures Trading

Shashakjain

Cryptocurrency trading has become an increasingly sought-after way to make money as people recognize its potential for profits. Thanks to technological advances and the convenience of the Internet, traders can now reap these rewards with greater ease than ever before.

Trading opens up a realm of possibilities for users to make sound decisions, reduce risks and maximize returns. Popular instruments used when trading cryptocurrencies include technical analysis indicators, automated robots, market sentiment analysis, and risk management strategies – all combined giving you the edge in your investment journey. Crypto futures is a widespread financial instrument throughout large crypto platforms. Let’s see what that means.

What are Futures in Crypto?

These advanced agreements enable market participants to buy or sell a particular digital coin at an agreed-upon price and date in the future. Futures have been long used by traditional markets such as commodities and stocks, but now they can also be applied in crypto transactions.

Futures provide traders with the opportunity to hedge against price volatility, wager on future value changes, or guarantee profits:

  1. Suppose a trader expects that Bitcoin’s cost will rise in the long run – they can purchase a lower-priced BTC contract and then offload it when its worth appreciates for gainful returns.
  2. If someone anticipates that the worth of Bitcoin will drop instead, they can put up their contracts at higher prices and buy them back again later at discounted levels while still profiting from the transaction.

The Role of Leverage

Trading crypto futures heavily relies on leveraging, which permits traders to amplify their potential profits or losses. In basic terms, leverage provides the opportunity for traders to borrow funds from an exchange to enlarge their trades, allowing them to trade with more money than is actually present in their accounts.

Let’s illustrate this with an example. Suppose a trader wishes to purchase a Bitcoin futures agreement for $10000 but only has $1000 available in his trading account. Leverage can be used to borrow the remaining balance from the exchange – in this case, it would be $9000. If the price of Bitcoin rises by 10%, then profits would amount to 1000$, which is equal to a 100% return on the initial investment. Unfortunately, if the price drops by 10%, resulting losses will also sum up exactly the same as invested originally – that being said 100%.

It’s important to note that leverage can be a double-edged sword, and traders should use it with caution. While leverage can amplify profits, it can also amplify losses, and traders should have a solid risk management strategy before using leverage in crypto futures trading.

If you want to try this tool, welcome to the WhiteBIT crypto futures platform. It allows practicing different leverage ratios using demo tokens to understand how it works in practice.

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Experienced writer with a passion for anime and games. Adept at creating informative and engaging content, including articles, reviews, and features. Deep knowledge of the anime and gaming industries and always up-to-date with the latest news and trends. Committed to sharing insights and enthusiasm with fellow fans through writing.

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