Leverage explained

Leverage is a key feature of most advanced cryptocurrency exchanges. In this article, you will learn what leverage means when trading cryptocurrencies.

What is Leverage?

Leverage trading provides a chance for traders to make more profit with less capital. Technically, it means using “borrowed funds” to trade. When trading with leverage, you do not have to put up 100% of the trades’ value amount. Instead, you deposit an initial margin amount, which is made up of a fraction of the total trade value.

In short, you put down a deposit known as margin, which is leveraged to increase your exposure during a trade.

For instance, if you want to purchase 10 Bitcoin at a price of $20,000 on a regular exchange without leverage, you will have to spend 100% of the amount to make the trade.

This means that you will spend 10 x $20,000 in addition to the fees charged by the exchange to complete your purchase on a traditional exchange. When the bitcoin price goes up by 10%, your 10 bitcoins are now worth $22,000 each.

If you exit the trade at this point, you will make a profit of 20,000 from your $200,000 investment. 

On the other hand, if you trade on a platform like AAX with 1:100 (100x) leverage, you will only pay 1% of your $200,000 position. If the position rises by 10%, you will still make a profit of $20,000 at a lower cost. 

Leverage trading amplifies trading, opens traders up to more opportunities since they spend less on positions, and also allows traders to gain from price depreciation.

Leverage trading is mostly deployed in futures trading, where you can use leverage to speculate on the price direction of a cryptocurrency.

How To Use Leverage of AAX

You can trade with leverage on AAX when trading futures. You can select between BTC settled or USDT settled futures.

In this example, we will use USDT settled futures and the BTC/USDT pair. To trade with leverage on AAX, open the AAX platform, hover on the ‘Futures’ tab at the top of the page, and select USDT settled futures.

A new futures trading interface will load, allowing you to make your order. For instance, if you want to purchase a BTC/USDT futures contract worth 10 USD with 100x leverage, you will need a balance of 10 USDT/ 100.

Enter ’10’ in the contract section and select 100x at the leverage section. AAX provides an intuitive slider that makes it very easy to set your leverage. 

After this, you can click long or short (depending on your position) to initiate your trade.

A pop up will appear with a summary of your trade. Review the details and click ‘Confirm’ to purchase your futures contract at 100x leverage.

Leverage trading comes with higher risks; traders can make a lot of profits or a big loss. If you are completely new to trading with leverage, it is best practice with lower leverage. You can learn how to do that in our article on Adjusting your leverage.

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