What you should know about leverage when it comes to crypto trading

Most novices in crypto trading are confused about what leverage is which is one of the most important aspects when it comes to trading crypto currency or any other asset. Here, in this post, leverage is what has been explained in detail for you to understand.

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What leverage means

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When you hear the words "Leverage", then think of how sometimes you borrow money from your loved ones or friends to start up a business or run one of two things that are important to you. By this simple intro, it means Leverage is all about using borrowed capital from a broker to trade cryptocurrency.

Notes it is not when you borrowed capital from your loved ones or friends to trade, but when you borrowed capital from the exchange or trading platform you are opening your trading position is what makes it leverage.

Having said that, leverage is a very simple way to keep your trade tuning by borrowing capital from the exchange (trading platform). Leverage is what allows trades to trade the crypto market with more money than what is in the trading account.

Leverage is measured in ratio which varies based on the crypto exchange (platform) you are using, in some exchanges you can borrow up to 100 times what you have in your trading account.

For example, let's say you want to open a trade and you have chosen your leverage to be in the ratio of 1:10, it simply means you can trade with 10 times the amount of capital (money) that is in your account.

_{screenshot gotten from mexc exchange}

Now let's assume that you have $100 in your Mexc account or Binance future and you want to open a position that is worth $1,000 in STEEM, it means with 10x leverage you will get $100 which is the buying power of $1,000. In a case where you have $1,000 with 10x leverage, you will be given $10,000.

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An example of using leverage in a Long position (BUY)

Before, going into future trade, I will advise you to have a good understanding of how future trade works.

_{screenshot gotten from mexc exchange}

Looking at the STEEM/USDT Future in MEXC. Let's say for example you want to open a long position (BUY) with $10,000 worth of STEEM as your capital and decide to use a leverage of 10x, it means out of your money $1,000 will be used as collateral for the amount you are borrowing.

To that, if the price of STEEM rises by 20%, it means you are going to earn $2,000 as your profits, which is higher than $200 if you don't make use of leverage. In a sad moment, if the price of STEEM should drop (fall) by 20%, it simply means you would be losing $2,000 which you need to have good trading risk management.

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How to handle leverage when opening a trade

Knowing how to manage risk is very important when it comes to trading and leveraging what you can use to manage your risk tolerance. High leverage led to high profit or loss. Now, for you to handle your trading leverage, follow the tips shared below.

• TIP1: Have a good understanding of what leverage and margin are before thinking of going into future trade.

• TIP2: Ensure you have your trading plan set and a good strategy for managing risk

• TIP3: Do not begin with a high position or leverage as a novice

• TIP4: Practice with a demo account and get used to the system before using a real account.

• TIP5 Ensure you use Stop-loss and Take-profit to manage your trade.

• TIP6: Put a close eye on your trade because the market can change in a second. All these and many more that can not be shared now are tips for managing leverage.

Conclusion

_{Going into future trading is something you should master very well and understand before jumping into trading crypto FUTURE, because of the nature of how cryptocurrency is volatile. With the help of this post, I believe you have known what leverage is and how it works.}