Using 100x leverage in trading refers to crypto margin trading. The basics of Bitcoin margin trading are straightforward. To put it simply, Bitcoin margin trades let traders borrow capital to access enhanced buying power and open positions that are larger than their actual account balance. So, you can gain more exposure to a certain instrument by borrowing capital from other traders on an exchange. Unlike regular trading where traders fund trades by using their own capital, margin traders can multiply the amount of capital they may trade.
You must be wondering how margin trading relates to 100x leverage. Margin trading is often referred to as leverage trading. Margin is the minimum percentage of the amount that is required by the trader as collateral in order to open an increased position. Leverage is the amount by which you can multiply your position during trading. So, if a margin trader opens a trade with 100x leverage, they can multiply their exposure and potential profit by 100 times.
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Leverage trading Bitcoin works simply at a fundamental level. A trader offers a little bit of capital to the exchange to trade a higher capital. In this scenario, the trader risks their all for the opportunity to make a significant profit.
Different amounts of leverage are offered by various cryptocurrency exchanges. While some exchanges provide 200x leverage allowing traders to open a position that is 200 times the value of their initial deposit, others limit the leverage to 20x, 50x, or 100x. So, 100x leverage trading means trading with 100:1 leverage.
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Pros and Cons of Using x100 Leverage
Margin trading using 100x leverage has both advantages and risks. If the trade is successful, you can gain profits equal to the increased portion size. However, if it is unsuccessful, the trader can lose the initial investment.
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Pros
By using 100x leverage, traders with low funds can have the same opportunity to profit as traders with higher capital. This is a great shortcut to grow trading accounts faster by benefitting from higher returns. For example, even if your trading account holds $1000, you can open a position of $100K with 100x leverage. Now assume that the market positively moves 5%. In this case, the profit gained from that position would be $5000, the same a trader with $100K in their trading account would gain from a standard position with no leverage. So, if you had not used leverage, you would have gained $50 only on your $1000 account.
When you need less capital, you get the opportunity of hedging portfolios with multiple trades at the same time which helps to minimize risk. For example, you may open a short hedge for protecting against the loss of a failed long position in the event where the value of the asset decreases unexpectedly.
Just like the US dollar, it is the same with Bitcoin. When it comes to the spot market, you need thousands of US dollars to trade 1 BTC. However, with leverage trading, you can open a big position at a fraction of the cost. The higher leverage you use, the lower you need to spend on the position. Assume that the current price of Bitcoin is $8K, but you have $80 only. So, you can just by 0.01 BTC with it. However, if you open the position with 100X leverage, you can trade for as much as 1 BTC. This way, the chances of getting gains are higher since the profit of 1 BTC position is definitely greater than 0.01 BTC.
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Cons
In the case of leverage trading, the risk of loss is just as huge as the potential gains. You need to keep in mind that the available margin is fractional when you compare it to the leveraged position size. Moreover, the margin is eaten up with the price movements in the opposing direction to what was hope and anticipated by the trader.
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For example, for a $10K position opened with $100 only by using 100X leverage, the trade can be liquidated if the price unfavorably moves even by 1% only because 1% of $10K is $100. It is especially a concern for crypto traders in high leverage positions because the volatility of crypto markets is notorious where wild price movements are common.
You need to take fees into consideration as well and they vary from exchange to exchange. The fee is not usually applied to the initial investment but to the increased position size. This is fair because a trader who is opening the trade with the same size of position without leverage would pay the same. In some cases, the broker or trading platform takes extra funding fees for margin trades.
This is why it is essential to choose a margin trading platform that offers low fees and preferably does not charge additional funding fees. IQ Option seems to be a very good choice from this perspective where you can trade important cryptocurrencies like Bitcoin with 100X leverage.
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Risk Management
Keep in mind that high risk comes along with high reward. The price of Bitcoin goes up and down rapidly since it is a highly volatile asset. The leverage indeed multiplies your gains, but it can also compound your risks of potential losses if the market goes up when a sell/shot position is open or if the market goes down when a buy/long position is open. You must be cautious about this risk because at a certain point, the position will be liquidated and it will lead you to lose the money you put into the position. This is why every trader must take risk management seriously. You must always take necessary initiatives like stop loss to avoid losing your money.
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View more: Cry Macho, Reviewed: Clint Eastwoods Rueful Tale of a Boy and a Bird
