What is Leverage Trading

What is Leverage Trading?

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Along with the increasing interest in trading cryptocurrency derivatives. The demand for Leverage trading is also increasing. Adding Leverage trading as an option for traders, especially those who already experienced to improve their trading experience and increase the chance to get greater profits.

What is Leverage?

Leverage is a trading strategy where a trader borrows funds to a broker or exchange that will be used as capital to open a position in trading. This is done to increase the number of positions taken, market exposure, and the possibility of getting greater profits. Leverage shows how much an increase in these positions, for example, 100x leverage (1: 100) will make $ 100 Bitcoin positions have the possibility to profit up to $ 10,000 Bitcoin positions.

With the same example, $ 100 which is the value of the trader’s investment also known as “margin” and is used as collateral if the market price is losing money. The amount of loss possibility for trader is only the same amount of the available margin available to keep trader to lose all their capital compares to the amount profit that trader can get if the trade success.

How to Use Leverage?

Leverage can be used in trading derivatives to open long and short positions, thus allowing traders to benefit in bearish or bullish market conditions. When trader target for a long or short position is reached then trader closes the position, the calculated ROI is the profit gained multiplied by the amount of leverage determined by the trader at the beginning of opening the position.

Leverage is also a fairly complex tool even though it sounds theoretically promising. In reality, the use of leverage allows traders to gain considerable benefits, but this also applies to the opposite. Leverage doubles both profit and loss so that if a trader uses leverage when opening a position and what happens is the loss is likely the position will liquidate will be greater following the amount of available margin.

For this reason, leverage is usually avoided by new traders and even for professional traders leverage becomes a tool that must be balanced with strong analysis, adequate experience, and proven strategies related to selected assets.

But as technology advances, new traders can experience the benefits of using leverage without the need to think about existing risks by using trading algorithms. Users or investors can choose and follow the strategies available from the trading algorithm provider platform, one of which can be tried is the strategy available on useNobi.

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Also published on Medium.

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