Leveraged Tokens | How to make more profits in the bull market (2024)

FAQs

Leveraged Tokens | How to make more profits in the bull market? ›

If the bull market comes, the Leveraged Token will be a good way to make more profits. Because of leverage, it will make more profits compared with spot trading. Compared with traditional margin trading, the Leveraged Token allows investors to gain leveraged exposure without worrying about liquidation risk.

Leverage in cryptocurrency trading provides enhanced purchasing power to traders through borrowed capital. Using leverage allows traders to multiply the size of their positions and increases the potential for higher profits.

Although leveraged tokens have comparatively lower risks of liquidation than other derivative products, they still have high risk due to leverage, which will magnify both your profits and losses.

Leveraged tokens are a financial product that provides traders with leveraged exposure to an underlying digital asset without the need for collateral and liquidation risks.

Leveraged Bitcoin ETFs multiply the performance of Bitcoin's performance for the day. For instance, a 3x leveraged Bitcoin ETF will treble Bitcoin's performance for that day.

It involves taking on debt to increase potential profits and minimize personal risk when investing. By borrowing money from a lender, a business owner or investor can purchase more assets than they might be able to with their funds.

By doing so you paid ₹2 lakh from your own pocket but were able to trade 1,000 shares worth ₹10 lakh (5x). Without leverage in the stock market, your total profit would have been only ₹100 x 200 = ₹20,000. Hence, through a leveraged trade, you not only gained 5x exposure but also made 5x profit.

Leveraged tokens yield traders the best gains in a one-sided market, which makes them best suited for short periods when the market is in a constant (often intraday) trend. Since leveraged tokens are rebalanced often to maintain constant leverage, it can be difficult to predict their long-term performance.

However, if the price of ETH falls by 10%, the 2X long leveraged token for ETH will decrease by 20%. The risk-reward ratio of leveraged tokens is very high due to its volatility. Traders are advised to proceed cautiously when using leveraged tokens, as the risk of heavy losses is significant.

Leveraged tokens can be traded — buy or sell — on the Spot market.

How do you use leveraged tokens? ›

Leveraged tokens work by automatically rebalancing their positions on a regular basis to maintain their desired leverage ratio. For example, if a trader purchases a 3x long Bitcoin leveraged token, and Bitcoin's price goes up by 5%, the token's leverage ratio will decrease to 2x.

With x10 leverage you could execute the same trade, but your $1,000 would act as what is known as a Margin, and you'd effectively be trading with $10,000. Now the 10% gain would translate into a $1,000 profit (10,000*0.10). However, the 10% loss would result in you losing your entire trading capital - 100% loss.

For example, ETHBULL is a 3x long ETH leveraged token. So it triples the profits of ETH gains, as well as tripling the losses. So if the price of ETH increased by 1%, ETHBULL increases by 3%. Similarly, if the price of ETH dropped by 1%, the price of ETHBULL drops by 3%.

Anyone who's taken out a mortgage to buy a house or paid for holiday gifts with a credit card has used leverage—borrowed money that enhances your immediate buying power but must be paid back.

Opening a trade with $100 and 20x leverage will equate to a $2000 investment. - Correct Answer b. If the equity in your account falls below the required margin, a "margin call" will not liquidate your trades.

Understanding Leverage for Beginners

Leverage is a ratio that represents the amount of money you can control with your initial investment. In other words, it allows you to trade with more money than you actually have in your trading account.

Pip value is a measure that reflects how a one-pip change impacts a dollar amount and leverage is the amount of money you have available as a borrower. The more leveraged you are, the more risk you are facing; but on the flip side, the more leveraged you are, the greater the opportunity to profit.

The amount of leverage in any investment creates a multiplier effect, equally on both ones ability to make a profit or sustain a loss. In other words, to the extent of your leverage, typically shown as a ratio compared to 1, where 1 is no leverage at all and just a cash investment.

In other words, a company can use leverage for various reasons like increasing the value of their assets, acquiring new equipment to increase the shareholder value, and many more. Whereas an individual investor usually uses leverage to increase the return of their investments.