You have probably heard about a new trend in cryptocurrency trading called leveraging. You’ve heard stories of people getting rich, maybe you’ve heard that some of your friends are profiting off of it or trying to get into it. Maybe you’re trying that as well, but do you know what exactly leveraging is, or how you’re supposed to get started with cryptocurrency trading? Why don’t you read on to find out about cryptocurrency leverage?
Leveraging practically means borrowing funds from a third party, called a provider, in order to maximize your cryptocurrency gains. The leverage usually goes from 2:1 up to 200:1. What this means in layman’s terms is that if you have $100 and you find a provider with a 10:1 leverage, you can buy $1000 worth of cryptocurrency and only risk losing the $100 you invested (plus the provider’s fee).
How does the provider not lose any money if, say, the price drops? Wouldn’t you have to give back the $900 you borrowed? The short answer is yes, the provider obviously wants back the sum you borrowed, but they have systems in place that guarantee no losses. If the value of the $1000-worth cryptocurrency goes down to the sum you borrowed, that is, $900, they will automatically sell the cryptocurrency so that no loss is registered on their side and no extra loss is registered on yours.
This is the most important part, because it genuinely means that if you get a 100:1 provider and you place $100, you could invest $10,000 in any cryptocurrency you wish, without having to actually have that kind of money.
You will most definitely stumble upon providers that require a certain status to work with you, such as GDAX, which only works with accredited investors. One place you could look at first is Kraken. They allow margin trading for clients ranked from Tier 1 to Tier 4.