Leverage size when trading cryptocurrencies

Initially, cryptocurrencies were perceived only as an object for investment or one of the options for making payments, but gradually the volume of speculative transactions began to increase.

And after such an asset as cryptocurrency pairs began to be traded on the Forex exchange, the opportunity to use leverage appeared.

This tool was first provided by brokerage companies that are engaged in bringing transactions to the crypto market.

Using leverage allows you to increase transaction volumes tenfold, thereby increasing the potential profit on transactions.

 Do I need to pay separately for leverage?

Surprisingly not, the fee is the spread or commission that you pay when opening a trade, if the volume of the transaction increases due to borrowed funds, then the size of the spread increases.

This option is beneficial to the broker, therefore, in most cases, brokerage companies encourage the use of large leverage and an increase in the volume of transactions.

For example, you opened an order using only your own funds, buying 1 lot of Bitcoin at a price of 20,000 and paying a $90 spread. The next deal was opened with a leverage of 1:10 with a volume of 10 lots, in this case the spread size will already be $900.

How much leverage is available for use today?

Today, the maximum allowable amount of leverage for cryptocurrencies is much lower than for classic currency pairs.

Depending on the broker, the leverage size ranges from 1:2 to 1:50, for example:

RoboForex ( roboforex.org ) – 1:50 is the largest leverage for these assets today.

Alpari ( alpari.com ) – 1:10 is a sufficient size for scalping on crypto.

Amarkets ( amarkets.org ) – 1:10 larger than the average size that cryptocurrency brokers typically provide.

What leverage should you use when trading cryptocurrencies?

Ideally, none; this type of asset already has sufficient volatility, but, as always, you want to earn more.

If we take into account that the BTCUSD currency pair trades 3.5-4% on average per day, then for short-term trading we can recommend the following leverage:

Low risk – no more than 1:3
Medium risk – from 1:5
High risk – more than 1:10

In my opinion, using leverage on cryptocurrencies larger than 1:10 is quite difficult due to the high spread across cryptocurrencies. Depending on the situation, the size of the spread may be such that upon opening the position will go into a deep minus.

For example, with a deposit of $2,000, you opened a Bitcoin transaction with a volume of 5 lots and a price of 20,000, that is, the transaction amount was $100,000, while a leverage of 1:50 was used, the spread value was $90 per lot.

A spread of $450 or 22.5% of our deposit has been charged, it is clear that the price only needs to move 0.5% in the right direction to compensate for the commission for opening a transaction, but the trend does not always move in the right direction and it is possible the deal will have to be closed at an even greater loss.

Therefore, to feel the beauty of trading cryptocurrencies with leverage, first try working on a demo account with the specified parameters.