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What are Crypto Levers? | ZebPay


Crypto leverages are financial instruments that allow traders to trade by borrowing money. Leverage provides returns and losses in terms of multiples of the collateral. However, they come with many risks. The crypto industry is booming at a rapid pace. With this rapid boom, the number of investors and traders in the industry has also grown exponentially. Not only that, the number of financial instruments to enable innovative ways of making money has also populated the crypto industry. If you are such a trader or investor, you should be aware of crypto derivatives in the form of futures, options, perpetual and swaps. In addition, there is another type of financial instrument called crypto leverage that you should be aware of. Let’s dive in to expand the mystery. What are Crypto Levers? Crypto levers are trading tools. You can use leverage by borrowing money against collateral and then trading with the borrowed money. This allows traders to take large positions in the market without actually having the money to back it up. Essentially, leverage allows you to make trades greater than your buying power. Mainly because of the leverage and the collateral against which you borrow money. Due to a leveraged position, they run a high risk of losses. At the same time, thanks to a leveraged position, they also offer opportunities for greater profits. Levers are generally used for speculative purposes because they provide more flexibility. In addition, they are used to hedge the risks of crypto volatility. An example of how a crypto leveraged trade would turn out in the real world is simple. Let’s say you have x3 leverage on $100. That means you can buy $300 worth of crypto with $100. If the price of the asset increases by x1, you earn x3, this is an easy way to explain leveraged trades. They are not dependent on the price of the underlying asset. Fundamentals behind crypto leverage It is interesting to see how crypto leverage works. Essentially, you borrow some money against collateral to make an investment in an asset. Two fundamental concepts that work behind Crypto leverage are margins and liquidations. Margin is essentially the amount you borrow from your broker to invest in an asset. This is why the popular phrase “trade on margin” is used. Liquidation is a process that occurs when the trader’s position makes more losses than the margin they trade on. During the liquidation, the trader’s open positions will be closed. Now that we know the basics of crypto leverage, you can start using them. But always remember to do your own research first
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