Posted 1 year ago | by Ben Armstrong

How Dangerous is Leveraged Trading?

Leveraged trading is also known as margin trading, margin finance or trading on margin, and it allows you to open a trading position with a broker by using a small amount of capital to take a much larger position in the market.

For example, you can leverage your trading position up to 100 times with some crypto brokers. Therefore, if you leveraged $1000 USD at 100:1, you would be able to take on a position of $100,000 USD in the market.

While trading with leverage can make a great trading thesis a lot more profitable, it is also far more dangerous to your capital. Losses hurt, and it is important to understand the risks you are taking with leveraged funds.

If you would like to start trading leveraged crypto products, check out Phemex. It offers an amazing crypto trading experience, and it will be offering other financial products this year.

Leveraged Trading has a Learning Curve

When trading on margin, risk control is everything. You need to understand that you may be wrong, and you need to use stop-loss orders to protect your capita.

Leveraged trading has become a much more attractive option for investors since it brings to them fast potential returns. However, it also has risks for those who are uneducated in trading these parameters.

The important thing you must understand to succeed in trading over the longer term is that the higher the risk, the greater the level of knowledge and experience required to manage the risk.

Unfortunately, individuals with little knowledge are attracted to these leveraged markets since they believe that they will make loads of money in a short time. Let's think about how leveraging your trading capital could work, and what might not be such a hot idea.

Stay Safe in the Futures Market

The first thing that is necessary to understand is that leveraged trades aren't for HODL investors. A stop-loss order should be paired with a take-profit order for a very good reason. The money your broker lends you isn't free, and you will need to keep in mind that trades aren't the same things as long-term investments.

Know how much you are willing to lose, and also know when it is time to take your profits off the table. We have all heard stories about (or even know) someone who made millions of US dollars with Bitcoin.

They probably didn't do it with leveraged trades, unless they are a very astute trader (in which case, they could do it in basically any market, not just cryptos). Make sure that you understand the nature of a leveraged futures contract, and that you can lose everything you put into your account, if you don't know how to manage risk.

All of that said, a good trader can smash the paltry 10% annual return that most people hope for when they bet their life savings in the stock market, and unlike the sheep that just hand over their money to investment banks, traders know how to limit risk.

If you think you are ready to enter the world of leveraged trading, click right here to sign up to Phemex. It is a great exchange that is based in Singapore, and has a top-notch backend for clearing trades.

People who make money in leveraged trading tend to make a lot of it, so be careful, and make sure you understand what you are doing before you put your tokens on the line!