Pros and cons of trading bitcoin with leverage

Bitcoin is like an ocean and you are a fish catcher, the larger your net is to capture fish, the more fish you would be able to catch. The same is the case in bitcoin trading, the more you invest more you earn. Unfortunately, not everyone is well off enough to invest a huge amount of money in order to get massive returns. 

Bitcoin trading with leverage could help you to earn more in less. This article would help you to understand how bitcoin leverage works and what are the advantages and disadvantages of opting for it.

The trend of “trade with leverage” became popular in 2019 in the cryptocurrency trading market. Trading platforms that provide the facility of “trade with leverage” have been more successful in attracting traders’ attention toward their platform by allowing an increase in the leverage ratio.

What does it mean by “trade with leverage”?

Leverage is normally presented as a ratio, for example; 1:3 or 1:4 this means that if you deposit $1 in your trading account, you can open a trade with $3 or $4. Now, with leverage of 1:4, if you open a position in bitcoin with $ 20,000, then only one-fourth ($5000) of that particular amount would be your own money, the remaining $ 15,000 would be considered as the borrowed amount. This will enable a trader to invest a small amount of money in order to get a large position in the market. 

Now, let’s turn things the other way around to understand the “trade with leverage” with more clarity. If you deposit $ 5000 into your account, you would be able to open up your account with $ 20,000. If this trade generates a 10% (2000) return, your account balance will actually increase by 28.57% (to$ 7000).

If the trade from the result was10% loss, then you would have actually lost 8.57% of your account balance. This is why it becomes a bit riskier to invest in bitcoin with leverage, that’s why it is recommended to in a short term with strict money management applied.

Benefits

• Leveraging in bitcoin helps a trader to control much larger positions than the actual amount deposited in the account.
• Leverage gives an opportunity to magnify your profit by investing a small amount of money.
• Enable traders to take risks, in order to get rich in less period of time.
• Enhanced trading power

Drawbacks

• The  trading platforms charge high fees for using the facility of “bitcoin leverage”
• Bitcoin leverage makes you greedy and you no longer find interest in trading bitcoin without leverage.
•  The desire to trade bitcoin with leverage can cost you your existing earnings made by trading without leverage.

It is safe to trade bitcoin without leverage, but the opportunity to make a massive return with less in the pocket would be gone. It is all about, to what extent to you willing to take a risk. If you are a composed trader and have control over your trading habits, then trading with leverage might not suit you, but if you are an impatient trader and always looking forward to doubling your investment, then trading with leverage is not a good idea.