The last few years have seen many forex brokers offer high leverage on the cryptocurrency trading. It’s therefore not a secret that throngs of crypto traders have also been gravitating towards such brokers. Experienced traders are known only to consider brokers who are offering good leverage because they already know how to manage risk.
The crypto exchange comes with more volatility compared with equity and other financial trading instruments. Hence, leverage does increase risk. But such has not stopped a number of crypto traders from seeking the same advantages that different forex traders enjoy in terms of leverage to increase their profit margin.
Let’s explore the pros and cons of high leverage on cryptocurrencies.
Advantages of Trading Crypto with High Leverage
Most cryptocurrency traders who have been the game know what good leverage can do in terms of investment growth. In the same breath, they also know that leverage can be a double-edged sword which they need to manage with great care.
But again, they are always prepared for any eventualities, which then work well for their overall trading experiences. Here are other advantages associated with high leverage:
1. Trading With Minimal Investments: Shrewd traders can take advantage of such leverage to make huge profits within a short period. A perfect example is where a trader would invest just 2% margin, which reflects into 2:200, allowing them to benefit from 200X of the amounts they can use for trading.
In such a case, their leverage position increases to $20,000; this is such an enormous amount of money. In this case, just 200 dollars has been put at risk, and, still, you get large rewards on leverage.
2. Interest-Free Profits: The fact that leverage is actually money borrowed from brokers, allows traders to escape any deductions on their earnings as interest.
Other types of
trading usually attract fees and interest, while for them, any amounts they
earn as profits on leverage attracts zero interest. It works so well in
amplifying the overall growth of the investment portfolio of any outgoing
3. Taking Advantage of Volatility: Trading in crypto is like riding on high seas, you just never can tell when the waves will come crashing. But traders can also take advantage of the unpredictability in prices to use high leverage and earn massive profits. Most traders can utilize this time, to enter short positions; this allows them also to endure the tough times when crypto is not performing so well, and still maintain their profit margin.
There is no denying that trading with high leverage in an uncertain trading environment can be quite unnerving sometimes. Even the very experienced know how volatile such cryptocurrencies as Bitcoin, Ethereum, Litecoin and others in this category can sway at the best of times.
Here are some of the disadvantages of high leverage.
- Most brokers will only fund you with leverage if you have a higher margin. This means that you also put your financial investment at risk in case you tumble.
- The fact that cryptocurrencies carry a lot of risks means that only highly experienced traders can comfortably enjoy working with leverage. New traders may not stand a chance in this game unless they have someone willing to hold their hand and guiding them along the way.
- There are always very high chances that as you are registering high profits with leverage, you are equally registering high losses, which needs a keen eye to decipher. In the long run, leverage can work against you, especially when the money market is not doing so well.
High leverage can work wonders for traders who want to make quick profits in cryptocurrency trading. However, it’s also essential to utilizing great strategies as you do so. The reason is that trading in crypto is risky while dealing with leverages is even more precarious. Extra care and risk management skills need to be applied every second, of every minute. Otherwise, losses can occur.
High leverage works exceptionally well for traders who have been in the field for a while. It is because they know and understand the high risks that come with trading with such highly volatile currencies.
Meanwhile, it would be advisable of anyone just starting to first work with a demo trading account to learn the ropes, before they can think of investing and seeking for leverage on their trades. It’s because, in cryptocurrency trading, it’s not just the skill, but confidence and the readiness to take risks that works better than anything else.
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