How To Use Leverage Effectively And Not Get Liquidated

By Crypto Beaver on The Capital

Trading bitcoin and cryptocurrencies can be a risky endeavor, but it also presents an opportunity to make significant profit. Many trading platforms such as Binance, Bybit, and Bitmex enable users to use leverage which can amplify gains, but also losses. Given the relatively unregulated nature of cryptocurrency, many traders in this space are uninformed about how to use leverage effectively. Leverage is also one of the reasons many inexperienced traders lose money. In this article, we are going to go over what leverage is, and how you can use it to manage risk without getting liquidated.

Trading Platforms are filled with lots of information. Therefore, it is important to take time to learn features such as leverage and liquidation before placing capital at risk.

What Is Leverage?

Leverage can be thought of as an amount of money that is loaned out for the purpose of a trade. The collateral for this loan is called the initial margin. The initial margin is the amount of your own money that you put up in a trade. For instance, if you use 10x leverage with an initial margin of $100, you are taking a $900 loan to increase your trading position to $1000.