In trading, leverage can be a powerful tool to increase gains without requiring more money to trade. Here, exchanges allow users to borrow funds and trade larger position sizes than their own capital will allow. That might seem ideal, but it’s important to remember that when leverage is applied, the trader’s losses are magnified. As always, careful risk management and thorough research are a must.
In this article, we'll explore what leverage in crypto is, how to apply it, and compare some of the top exchanges offering the technique today.
What is leverage in crypto trading?
Leverage trading is a feature offered by many cryptocurrency exchanges today, and some refer to the technique as margin trading. However, leverage and margin trading do have minor differences. Leverage allows traders to borrow funds from the exchange and trade with significantly more money than what is required for the order size.
With more money to trade, your gains will be amplified. However, it’s important to remember that your losses could also potentially be greater.
How does leverage trading work in crypto?
Applying the leverage technique starts with your own capital, which is traded in multiples of the same amount. Let’s look at an example.
If you have $1,000 in your account and open a position with 10x leverage, your order size is now worth $10,000. If the position’s value increases by 5%, you’ve made $500. That’s a gain of 50% on the initial capital of $1,000. At the same time, if the value goes down by 5%, you lose 50% of your capital. If the price slides further to 10%, you risk being liquidated and losing your entire $1,000.
Types of crypto leverage
Cryptocurrency exchanges typically offer two types of leverage:
Cross margin: With cross margin, the full account balance is used for leverage. This option is convenient for traders who maintain multiple leveraged positions. Cross margin also offers different risk management options. If one of your orders is in a loss position, you can prevent liquidation by making sure another order has made a gain. The margin requirement is calculated for the entire account, and as long as you have funds to cover your positions, you can prevent liquidation.
Isolated margin: With isolated margin, traders can allocate a specific amount of funds in their account for margin trading. Leverage is calculated on a per-trade basis, and when the price goes down, only the funds in that account are liquidated. However, losses can't be offset by other positive trades, or by the rest of the funds in your account.
Benefits of crypto leverage
Gives on-demand access to more liquidity than the trader has in their account.
Potential for greater gains.
Allows traders to open larger orders without using all their capital. So, even if you have enough capital, you can put it to use on other opportunities as needed.
Offers convenient hedging. For example, if you have a long order, you can open a short position with leverage to hedge your long order, minimizing your risk.
Allows for greater flexibility. If you see a market opportunity, you can quickly open up a large trade without moving around your assets.
Risks of crypto leverage
The biggest risk of leverage is that the downside can be as much as the upside. With the potential for exponential gains, you also run the risk of outsized losses.
You risk liquidation. With spot markets, if the trade goes in the opposite direction of your order, you still hold the underlying assets. However, with crypto leverage, if the order size is large and you don’t have enough capital, you risk losing it all. For example, you have $100 in your account and open a $1,000 long position on Bitcoin with 10x leverage. If the price of Bitcoin goes down by just 10%, you risk losing your entire capital of $100.
The cryptocurrency market is highly volatile. This could create a liquidation risk even if the volatility is temporary.
Leverage isn't free. You’re borrowing funds to trade from the exchange. Depending on the cryptocurrency, a daily interest fee is applied, which can eat into your total gains.
Top crypto leverage platforms
Now we’ve covered how leverage trading works, let's look at some of the top exchanges for applying the technique.
OKX
Founded in 2017, OKX is a leading cryptocurrency exchange that offers leverage trading across multiple cryptocurrency markets. With high liquidity and powerful trading tools like bots and futures, we’re the first choice for many who demand a reliable and transparent leverage trading platform.
Max leverage: Up to 10x on spot and 100x on futures.
Leverage trading fees: 1% annual interest rate is applied for most cryptocurrencies. For stablecoins, the rate can reach 10%. Refer to the market interest rate for current rates. On top of the borrowing interest rates, a 0.02% maker and 0.05% taker fee apply when placing an order.
Margin availability: Margin is available for spot, futures, perpetual futures, and options trading.
Pros:
Leverage is available on most markets OKX offers, including spot and options.
Offers powerful trading tools like custom bots and advanced order types.
A clear fee structure with low trading fees.
Extensive selection of cryptocurrencies to trade with leverage.
Cons:
Geographical restrictions in the U.S. and Canada.
MEXC
MEXC is well-known for its leverage capabilities. The exchange offers up to 200x leverage, which is one of the highest in the market. However, leverage isn't available on spot trading.
Max leverage: 200x for popular cryptocurrencies like Bitcoin and Ethereum. 50x is offered for lesser-known cryptocurrencies with lower liquidity.
Margin availability: Perpetual futures only.
Pros:
Supports up to 200x leverage, which is one of the highest available.
Low trading fees.
Cons:
MEXC applies deposit and withdrawal fees, which aren't applicable on most exchanges.
Leverage is available only for perpetual futures.
Binance
Like other major exchanges, Binance offers leverage on multiple products with good liquidity. On spot market, it offers 5x cross leverage and 10x isolated leverage. With perpetual futures, 125x leverage is available for both cross and isolated when trading popular cryptocurrencies such as Bitcoin and Ethereum. However, the leverage available falls to 20x for coins without high liquidity.
Max leverage: 125x for futures and 10x for spot.
Leverage trading fees: Fixed trading fees apply alongside an interest rate for borrowed margin. However, the interest is applied hourly and varies by cryptocurrency. The yearly interest rate ranges from 1% to 300%.
Margin availability: Spot, futures, perpetual futures, and options.
Pros:
Strong volume across most markets.
Cons:
The interest rates are variable, creating some uncertainty.
Only 5x cross leverage on spot market.
Not available in the U.S. and Canada.
Bybit
Founded in 2018, Bybit also offers leverage trading. However, the product is limited to 5x leverage on spot markets across a relatively small number of popular cryptocurrencies. With perpetual futures, 100x leverage is offered for Bitcoin and Ethereum. For altcoins, leverage is limited to 50x.
Max leverage: 100x for futures and 5x for spot.
Leverage fees: In addition to the trading fees, an hourly interest rate applies. The daily interest rate ranges from 0.008% to 0.04%, depending on the cryptocurrency.
Margin availability: Spot and perpetual futures markets.
Pros:
Low interest rates.
Cons:
Leverage offered is limited and lower compared to other exchanges.
Not available in the U.S. and Canada.
Kraken
Founded in 2011, Kraken is a well-established cryptocurrency exchange with an intuitive platform. The exchange provides a relatively limited number of cryptocurrencies and features. For trading with leverage, Kraken offers 3x leverage on spot and 50x on futures. However, futures trading isn't available in the U.S..
Max leverage: 3x on spot and 50x on futures.
Leverage trading fees: Kraken has a very simple fee structure. The platform charges 0.01% - 0.02% to open a position. Additionally, a flat margin fee of 0.02% - 0.025% is applied for every four hours a position is open.
Margin availability: Spot and futures.
Pros:
The fee structure is simple and easy to understand.
Spot trading with leverage is available in the U.S..
Cons:
Limited cryptocurrencies listed compared to other exchanges.
Futures trading isn't available in the U.S..
Leverage offered is low compared to many competing exchanges.
How to choose a crypto leverage platform
Read on for some key features to look out for as you choose a crypto platform to trade with using leverage.
Maximum leverage
The maximum leverage available is often the first feature traders interested in the technique look for from a platform. Different exchanges have different leverage limits, ranging from 3x to 200x. Remember to also understand the leverage available per cryptocurrency, as this figure can differ depending on the asset you want to trade.
Leverage products
Another fundamental factor to understand is the products leverage is available with. Not all exchanges offer leverage on spot markets, which can be a major limitation if you prefer this method of trading. It’s unwise to jump into an unfamiliar trading approach just to capitalize on leverage, given the risks involved.
Leverage fees
The next important factor to consider is fees. Most exchanges set a standard maker and taker fee, which are usually similar figures. However, major differences can be found with the hourly and daily interest rate on margin. These rates are often also different for each cryptocurrency on some exchanges. It's recommended to research the fees if you’re a high-volume margin trader because they could impact your total gains.
Availability
Cryptocurrency regulation and access are complex factors in every market, and not all exchanges offer universal access to margin. Consider an exchange that's readily available to you to avoid limitations to your activity.
Trading tools and features
The sophistication of an exchange’s trading tools and features can significantly impact your success when applying leverage. And, this is one area of competitive differentiation for many platforms, which build features to help users maximize their trading strategies. For example, we offer advanced bot trading to allow users to automate trades. Pay attention to the tools and features at your disposal — they could provide a powerful edge.
Customer support
Finally, take some time to explore the level and quality of customer support available to you. Look for an exchange that’s quick to provide help when you need it and offers multiple methods for geting in touch with support teams.
Tips for successful crypto leverage trading
Now we’ve explored some of the top crypto exchanges for leverage trading and how to choose the right option for you, what comes next? Read on for guidance on how to get started with crypto leverage trading.
Understand the risks with leverage
It's easy to get excited with outsized potential gains. However, keep in mind that leverage also comes with liquidation risks. Be sure to understand these risks fully before committing any capital. Remember to do your own research, no matter the trading strategy.
Start small and build slowly
If you’re not confident with applying leverage, we strongly recommend starting with a demo trading account to practice your trading skills. Here, you’re free to test strategies, get to know features, make mistakes, and learn without risking real money.
Have an exit strategy before you enter trades
Be sure to know when to take gains and set stop losses to manage risks effectively, depending on your risk tolerance. It's easy to get emotional while trading, and good traders are good at avoiding it. Resist the urge to double down in an attempt to make up for losses, as this could simply amplify your losses.
Watch your positions closely
Most leverage positions are short-term trades since you’re paying interest on the leverage taken from the exchange. As a result, keep a close eye on your positions so you can react quickly to either lock in gains or limit losses.
The final word
Choosing the right cryptocurrency exchange when applying leverage trading can make a major difference to your success. There’s much to consider before committing your funds, and being sure to complete thorough research into the exchanges that offer leverage is a fundamental first step.
Platforms that offer the highest leverage across a wide variety of products and crypto assets won’t necessarily be the right fit for your trading strategy and priorities. Consider also the fees involved, the tools and features you can use, and the level of customer support provided. With a full and thorough understanding of all the options, you can make an informed decision about the best exchange for crypto leverage trading, and manage the risks effectively.
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