Beginner’s guide to selecting right leverage for margin trading

leverage trading

Crypto exchanges can provide from 1x to even up to 100x leverage for margin traders? But while 100x leverage brings hope of awe-inspiring profits with margin trading, do you think such a colossal volume of leverage would be right for you? Or, in fact, how much crypto exchange leverage do you think would be right for you? Is there any ideal scale for leverage in crypto margin trading? Well, finding the right crypto exchange leverage largely determines the fate of your margin trading. Check out more at Multibank.io.

The post below offers a  pro guide on finding the ideal crypto exchange leverage for your margin trading.

Factors that influence selection of leverage

There is not one but multiple factors that can have an influence on your selection of crypto exchange leverage for margin or leverage trading.

Trading timeframe and type

This is one of the first things to keep in mind while selecting crypto exchange leverage.

Always remember that trading timeframe and leverage level must be inversely proportional. This helps to create the most compatible risk-to-reward ratio for short term as well as long term traders.

In other words, your choice of crypto exchange leverage will be different if you are trading in short-term compared to trading in long-term.

  • Leverage volume during scalping

Scalping is a type of day trade where traders trade within 1-5 minutes, sometimes after every few seconds. This short-term trading strategy uses a high level of leverage. As mentioned above, the timespan of your trade and leverage volume would  be indirectly correlated. Thus, since scalping is a short-term trade, it can use higher leverage levels, say 10x to even 25x.

Scalpers try to make the best use of high volatility but in short, say, immediate term, say, just a few minutes. They try to seek entry as well as exit points when there is potential for high volatility as well as capitalize on minor sub-1% shifts with amplified leverage.

Let’s say, a trader takes 25x leverage with a margin of $5,000. The total trading capital with margin trading would go up to $125,000. In that case, if there is just a .5% price shift, the trader will make a good profit worth $625, offering 12.5 percent gain for the trader.

In scalping, higher  leverage lessens the gap between liquidation price and entry price. As a result, scalpers tend to make entry as well as come out of the trade within an extremely brief timeframe . This in turn helps to reduce volatility risks for the trader.

  • Leverage volume during swing trading

Unlike scalpers, swing traders mostly follow a slightly longer trading timeframe. So, while scalpers mostly hover around 1-5-minute duration, swing traders take to, say 4 hours or a single trading day.

Let’s say, a swing trader takes 2x leverage for a margin deposit of $5,000. After the leverage, the total trading capital shoots up to $10,000. .

Now, if the market shows price shift, say by 15%, then the trader will attain a mighty profit of $1,500. It would mean a solid 30 percent gain for traders.

A swing trader usually aims for lengthy positions and might hold on to the position for days or even 2-3 weeks. Hence, it is extremely crucial to stick to low leverage as it would help to prevent sudden accidental liquidation.

Individual volatility of the chosen  crypto

You should know that every crypto carries a unique volatility personality. Thus, just because BTC is taking a dip doesn’t mean ETH prices would plummet as well. It’s true that when the crypto market crashes, every crypto crashes. It’s because in that case, the whole market is down. Bottom line is, just because your friend’s chosen crypto is showing a rise, doesn’t mean your chosen one would too. So, always keep in mind the volatility aspect of your chosen crypto while choosing the right leverage level.

If your chosen crypto is infamous for being frequently volatile, try to maintain low leverage. On the other hand, you might aim for high leverage if the crypto assures a comparatively safer investment.

Your margin capacity

This is another factor to keep in mind while selecting the right leverage for margin trading.

If you are unable to maintain a required amount of margin in your trading account, your leverage trading position might get compromised. Your margin might get liquidated if you face losses, especially on larger leverage. In that case, you will receive a call from the crypto exchange that will remind you that you will immediately need to refill the margin amount, lest the trading position would be closed out.

So, before deciding on the leverage, you should always calculate whether you would be able to refill the margin amount on  a short notice if there is a problem. If you think you would be able to refill the margin   on short notice whenever needed, based on your chosen leverage level, then go for it.

In general, experts always suggest starting from the lowest level of leverage, say 2x or 5x.       

Wrapping up

So, you have all the expert tips to keep in mind while choosing the right crypto exchange leverage. We will conclude the post here with a few tips on finding the right crypto exchange platform for leverage trading.

Read more: https://multibank.io/page/leverage

You must take a comparative study before choosing the right trading platform for leverage trading. There is no dearth of crypto exchange portals around but not all would be able to offer you a memorable and safe trading experience with leverage trading. So, start by making a short list of at least 5-6 trading platforms. Then take a comparative study on them. You will check their reviews, ratings, and discussions about them. The one you choose should be backed by a high reputation in the market as well as great ratings and reviews from both users and experts.

Then, the chosen exchange should be able to offer a wide range of leverage levels to choose your specific trading goals. Besides, the exchange should also promise affordable trading fees as otherwise half of your profits would be exhausted in paying fees.