What Is Leverage Trading in Crypto — Beginners Guide

What is leverage trading in crypto and why is it so popular among professional traders? Because it enables them to increase their profits without making a large investment.

If you’re interested in learning how crypto trading with leverage works, how to manage risks associated with this strategy, and what are its main pros and cons, keep reading.

What Is Crypto Leverage Trading?

Leverage crypto trading is a strategy that refers to borrowing funds from crypto exchanges. This strategy aims to increase the buying and selling power, i.e., to bring a higher profit to the investors who use it.

This strategy allows investors to trade with more funds than they have in their crypto wallets. They’ll be able to borrow 5–200x their balance, depending on the crypto exchange they use.

Moreover, investors can make short- and long-leveraged trades. The former refers to the decline in digital asset prices, while the latter is associated with the rise in the value of cryptocurrencies.

However, leverage trading also comes with certain risks, which is why it’s not intended for beginners. What’s more, many countries have special rules for this type of trading. For example, in the US, investors will be limited when it comes to crypto spot trading using leverage.

How Does Crypto Trading with Leverage Work?

How to leverage trade crypto? Investors must first deposit their initial capital — collateral. The deposit amount will depend on position size and leverage ratio. The ratio can stand at 10x, 20x, 100x, etc. The higher the ratio, the higher the risk of liquidation.

For example, if you use a 10x leverage, your position will be worth $10,000, although you’ll have only $1,000 on your account acting as collateral.

Investors will also have to maintain a minimum margin on their accounts. Namely, if the margin falls below the asset’s value, investors will have to deposit additional funds to avoid liquidation. This is why investors need to choose a leverage ratio that best suits their budget and trading goals.

As mentioned before, leverage allows investors to open both short and long positions. A short position refers to a decline in the value of a digital asset, while a long position refers to the belief that the value of a digital asset will increase. Both positions will allow investors to profit.

For example, if you open a short position and the price of the cryptocurrency you are trading with drops, you’ll be able to profit by repurchasing it at a lower price.

Pros and Cons of Leverage Trading Crypto

Investors can benefit from using leverage with crypto trading in the following ways:

Increased Potential Profits

Leverage trading can increase your profits. For example — if you use a 5x leverage with a collateral of $100, you can buy digital assets worth $500. What’s more, even small price changes in the crypto market can lead to high returns.

Ability to Open Long and Short Positions

You can also profit from both declining and rising markets. On that note, if you open a long position, you’ll profit if there is an increase in prices. At the same time, you can profit by opening a short position, if the value of digital assets drops.

Diversification

Leverage trading enables you to diversify your portfolio and thus further increase your chances for high returns. This strategy will also allow you to trade with a wider range of pairs.

The main disadvantages of leverage trading include the following:

– Risk of Losing Your Capital

Using this strategy is very risky as it can lead to liquidation — you could lose your whole capital if the value of digital assets becomes lower than your collateral.

– Fees

Crypto exchanges charge fees on their borrowed funds, which can become very large over time. On that note, in addition to paying maker and taker fees, you’ll have to pay opening fees, rollover fees, and liquidation fees.

– Not Suitable for Beginners

Trading with leverage requires knowledge and experience, so beginners may find this strategy very challenging.

How to Manage Risk When Crypto Trading With Leverage

There are several ways you can reduce the risks associated with leverage trading. First, you should never invest more than you can afford to lose — don’t invest more than 5% of your collateral.

Furthermore, you can use lower leverage. In fact, many crypto exchanges put limits on their leverages, which most often vary from 5x to 200x. So, choose the best crypto exchange with leverage limits that suit you best.

You can also use stop-loss orders. They will help you to close your position after you reach a specific price. These automatic orders are very useful during market movements. Likewise, more experienced traders can learn charting techniques to help them predict price movements.

And finally, if the prices of digital assets are lower than your collateral, you can avoid liquidation by adding additional funds to your crypto wallets.

Crypto Leverage Trading vs Margin Trading

Now that you know what leverage in crypto trading is, you should also know what distinguishes it from margin trading. That said, leverage trading can only work with margins, and the same applies to margin trading.

The margin is the term used for the initial capital that investors must deposit into their accounts to trade cryptocurrencies. Margin can also be seen as collateral that crypto exchanges require from their users as a prerequisite for borrowing their funds.

On the other hand, leverage is a term that refers to the use of borrowed capital that will help investors increase their profit or trading position. Leverage can also be explained as a tool that enables you to multiply your profits. Leverage is usually expressed with an X, which denotes a multiplier — for example, 10x — while margin is expressed as a ratio — for example, 5:1.

Top Leverage Trading Platforms

The most popular crypto leverage trading platforms reviewed in details, are:

1. PrimeXBT – The best cryptocurrency leverage trading platform in 2024
2. Margex – Cryptocurrency leverage platform, excellent for new and experienced users
3. MEXC – Crypto trading leverage platform with some of the highest leverage trading limits
4. OKX – A platform with cross-chain functionality, allowing you to trade crypto with leverage
5. BloFin – The most secure crypto leverage trading platform that collaborates with AnChain and Fireblocks

1. PrimeXBT – The Best Cryptocurrency Leverage Trading Platform in 2024

PrimeXBT is a crypto exchange with over 1 million users. Its mission is to become a go-to place for all types of traders. On that note, traders can buy 60+ digital assets using Visa and Mastercard, swap one crypto for another, and store their coins on a PrimeXBT wallet.

This exchange also supports crypto futures with high leverage, ranging from 1x to 200x, and competitive maker and taker fees — 0.01% and 0.02%, respectively. Moreover, PrimeXBT supports 100+ CFD markets, including forex, indices, commodities, and copy trading. The minimum deposit amounts to $10 for indices, $5 for commodities, and $1 for crypto and forex. All options come with zero fees, except crypto CFD trading, which comes with a 0.05% fee.

Investors can open a free $10,000 demo account to practice their skills and learn how trading tools and order types work. In 2024, PrimeXBT won four consecutive Best Cryptocurrency Broker awards.  

2. Margex – Cryptocurrency Leverage Platform, Excellent for New and Experienced Users

Margex is an innovative, no-KYC crypto exchange that allows users to open accounts in under a minute after only providing an email address and setting a password. The platform has over 500,000 registered users and serves in 153 countries. Yet, it is not available in the US. 

Margex offers competitive fees, maximum leverage of 100x, and innovative features. Some of them are the MP Shield system and copy trading.  The former is built into the platform and protects users from price manipulation. The latter is also called ‘one-click copy trading,’ as users can copy the success of top traders with only one click. 

Margex offers tools for new and experienced users and an easy-to-use interface. To protect its clients’ money from hackers, the platform uses cold storage and multi-signature technology. Before trading with real money, users can use Margex’s demo account to practice leveraged trading.

3. MEXC – Crypto Trading Leverage Platform With Some of the Highest Leverage Trading Limits

MEXC is one of the favorite platforms of traders who want a wide selection of cryptos and advanced trading features. It offers spot trading, staking rewards, futures, monthly futures competitions, and its own MX token, allowing users to participate in airdrops and earn rewards. MEXC supports many leveraged futures markets covering Web 3.0, stablecoins, NFTs, the metaverse, and more. 

Cryptocurrency derivative products offer leverage markets, with perpetual futures being the most popular choice, covering over 100 crypto markets. Other features OKX offers are automated trading bots, futures trading, copy trading, and options trading. 

Plenty of trading activity can be found on popular pairs like BTC/USDT. Additionally, the platform facilitates leveraged trades for trending meme coins such as WIF, PEPE, and FLOKI. 

4. OKX – A Platform With Cross-Chain Functionality, Allowing You to Trade Crypto With Leverage

OKX is an innovative exchange that supports more than 70 blockchains and is available in more than 180 regions. Then again, it’s not available in the United States. The platform’s ‘full liquidation’ mode offers limits of up to 20x, so users’ entire trade can be liquidated if it decreases by a specific percentage. At the same time, its ‘partial liquidation’ mode offers up to 100x limits. 

Cryptocurrency derivative products offer leverage markets, with perpetual futures being the most popular choice, covering over 100 crypto markets. Other features OKX offers are automated trading bots, futures trading, copy trading, and options trading. 

The platform provides a demo account for beginners, which allows them to learn OKX at their own pace with no real money risk. Since OKX offers cross-chain functionality, users can swap tokens using two network standards. 

5. BloFin – The Most Secure Crypto Leverage Trading Platform That Collaborates With AnChain and Fireblocks

BloFin is a centralized exchange that supports spot, futures, copy trading, and 320+ trading pairs. Investors can also use its signal bot, while other types of bots, such as a Discord bot, will be released in the near future. The leverage on BloFin ranges from 1x to 150x, depending on the traded pair.

This crypto exchange is known for its high-security standards. It collaborates with AnChain, an AI-powered blockchain intelligence platform that uses the Know-Your-Transaction solution. This means that BloFin will monitor and track all transactions in real-time to detect fraudulent activity. The platform is also partnered with Fireblocks, an enterprise-grade platform that offers state-of-the-art custody solutions.

Those who create an account on BloFin will get a welcome bonus of up to $5,000, while its loyal members will be able to earn rewards by participating in multiple events. They’ll also be able to become BloFin’s VIP members. A higher VIP level equals lower trading fee rates.  

Conclusion

So what is leverage trading in crypto and how to take advantage of it?

Crypto leverage trading is an excellent strategy that can bring you high profits with minimal initial investment. However, this trading strategy also carries a lot of risk, which is why it’s not recommended for beginners. To protect your funds, you should never invest more than you can afford to lose. Furthermore, you can reduce the risk by using lower leverage and stop-loss orders.

Before you start crypto leverage trading, you should learn the basics of trading without leverage. This will help you gain more experience.

FAQs