Full illustration of leveraged trading in the cryptocurrency market with Currency.com.

What is financial leverage

Leverage is a widely used tool that gives the possibility to increase the total value of a given position on the market without necessarily having to commit large amounts of money.

As for the investment, the capital required to be able to open and maintain a position using leverage is called “margin”, in fact, trading with the use of this tool can also be defined as “trading on margin”.

It is possible to use leverage on any type of financial instruments, such as CFDs, forex and cryptocurrencies.

When the trader decides to invest his funds with the help of financial leverage, Currency.com will lend part of the total value of the position and the rest will be paid by the trader.

Profits and losses will be calculated on the overall total of the position in which you have decided to invest.

This investment strategy could both dramatically increase the earning potential and generate losses that could be higher than the initial deposit.

The formula that allows you to take advantage of the financial leverage is the following.

Leverage = invested amount (trader’s amount + broker’s amount) / equity – equity

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Practical example for leveraged investments on Currency.com

Suppose a trader has found that trading on margin can lead to quick gains and has decided to invest by buying Bitcoin.

At the time of the potential purchase, the price of Bitcoin amounts to € 8931. The trader, extremely convinced that the price of the cryptocurrency is on a rising trend, would like to buy 10 Bitcoins. But the total price of the position to buy is € 89,310. In this circumstance, two main factors arise.

• This operation carries an extremely high risk of loss.
• The trader intends to invest only € 100 in cryptocurrencies.

The trader is serious about continuing with the investment, how to deal with these problems? Just proceed as follows.

• Visit Currency.com official website .
• Go to the main screen and look for the Bitcoin / EUR pair.
• Click on buy.
• Select the lever in the upper left corner.

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Types of leverage available with Currency.com

Currency.com has three financial levers for cryptocurrency investments that can satisfy any need. The levers made available to the trader are 20: 1 – 50: 1 – 100/1

20:1 leverage

With the amount of total credit of € 75 on your account and an offered leverage of 20: 1, the trader will only have to invest one-twentieth of the total position, the rest will be covered by Currency.com. In practice, the total investment will be € 1500, € 1425 invested by the exchange and the remaining € 75 by the trader. The commissions to be incurred will be the following.

• Trading fee of € 1.12.
• Fee for the use of financial leverage equal to 0.01%.

Through this operation, the trader will buy a total of 0.167 Bitcoins.

Assuming that the price of Bitcoin has risen to € 10,000, by selling its 0.167 Bitcoins, the trader will receive € 1670 on his account from which € 1425 loaned by Currency.com will have to be subtracted. The remaining € 245 represents the sum of the invested capital (€ 75) plus the profits generated by the sale (€ 170) from which the costs deriving from the commissions must be subtracted.

50: 1 Leverage

An increase in leverage to 50: 1 will significantly increase the volume of a hypothetical transaction. Assuming an investment of € 100 by the trader, the latter will be able to buy 0.42 Bitcoins.
From the € 100 invested, € 2.82 will be deducted for trading fees and 0.01% for leverage fees. Therefore, from a net investment of € 93.87, the total amount of leverage will be € 3661. To minimize the risk of loss, it will be mandatory to use a guaranteed stop loss, this tool will prevent the trader’s account from going red. Upon activation of the tool, 0.5% commission will be charged.

Taking the same example, suppose that the price of Bitcoin has risen up to € 10,000, by selling their Bitcoins (0.42) the trader will receive € 4200 on their trading account. Of these € 3661 must be returned to the exchange and the remaining € 539 is equivalent to the capital invested (€ 93.87) plus the profits generated by the sale (€ 440) from which the leverage and stop-loss commissions must be subtracted.

100:1 Leverage

In order to take advantage of leverage of 110: 1, the situation changes, € 100 will not be available in order to proceed with the investment and the trader will have to opt for an investment of € 112 at least with € 5.6 commission.

The total amount of the transaction in this case will be € 7498 equal to 0.84 Bitcoin.

From the amount invested by the trader, € 5.62 of commission relating to trading, 0.01% commission for the use of leverage must be deducted.

The amount resulting from the use of leverage will be € 7386.08 and also in this case it will be necessary to activate the stop loss service with a commission of 0.5%.

With an increase in the value of the Bitcoin to € 10,000, the trader will receive € 8400 in the account. From these, € 7386 must be returned to Currency.com. By subtracting from the remainder the capital actually invested equal to € 112.47 and a commission of € 6, the trader will have a profit of € 783.

Invest in cryptocurrencies with Currency.com

Useful information to remember

1. the trader will have to pay the utmost attention and prudence, trading on the margin on cryptocurrency exchanges can generate both high profits and huge losses. Assuming that the value of Bitcoins falls to € 5000 and using a leverage of 20: 1, the trader selling his 0.167 Bitcoins will receive € 835 in his account. By subtracting the amount of € 1425 to be returned to the exchange and the commissions to be incurred, the losses to be covered will be more than € 590.
2. Sudden fluctuations in the market can significantly affect current operations. In order to avoid unpleasant losses, the trader will have to carefully study the ratio levels between capital and prepayment.

   If the level of capital advanced by the trader exceeds 100% of the net assets, it will not be necessary to deposit additional funds to keep the positions open.

   If the advanced capital falls to 80%, the trader will receive a margin call.

   If the level of the advanced capital is equal to or less than 50%, the platform will close any position opened by the trader without notice until his margin account reaches 80% of the net assets again.

3. With an investment of € 100, the trader will not be able to purchase 10 Bitcoins even using leverage. Currency.com allows its traders to take advantage of 100: 1 leverage. But with an investment of only € 100 and the price of Bitcoins equal to € 8931, the maximum leverage of 100: 1 would not even be sufficient for the purchase of a single Bitcoin. Therefore, in order to be able to deal with this operation, the trader would have to invest more than € 1000.
4. The amount of the leverage commission with Currency.com varies depending on the group of the tokerized asset.
5. Leverage fees are applied to orders both overnight at prevailing market rates and when markets are closed. Each trader will have the ability to check them at any time as they are clearly indicated by the exchange. Leverage fees are charged as follows.

   Every 8 hours for ETH / USD, BTC / USD, ETH / EUR and BTC / EUR.

   Every 24 for the remaining tokerized instruments.

6. The stop loss is a tool that allows you to avoid large unexpected losses in the event of sudden market swings. It does not allow the execution of an operation having a price different from the value previously set by the trader.
7. The amount of the advanced capital for the stop loss condition is calculated as follows:

   Prepayment Amount = Trade Volume / Leverage Size + Trade Volume X GSL Fee.

   Trade volume = quantity of assets X price at the time of order entry.

8. When the trader decides to invest in ETH / USD, BTC / USD, ETH / EUR and BTC / EUR using a leverage between 50: 1 and 100: 1, the stop loss will be automatically set and calculated as follows :

   Prepayment Amount = (Price at Order Placement – Price Level) x Asset Quantity + (Price at Order Placement x GSL Commission x Asset Quantity)

9. Profits and losses deriving from pending transactions that are part of the “trading with leverage” section are calculated with the following formula:

   P&L = Quantity x (Current Price – Transaction Price)

   The P&L of a portfolio is equal to the total sum of all profits and losses of current transactions

10. If the trader purchases tokerized bonds with leverage, he will receive the entire dividend resulting from the latter. Tokenized sub-asset divisions are paid both if purchased through the use of leverage or without.
11. If hypothetically a trader decides to trade Bitcoin without taking advantage of leverage, he would buy 0.01129695 Bitcoin. The profit, if Bitcoin grows to € 10,000, would be only € 11.
12. The fundamental difference between leveraged and ordinary trading is as follows.
    In the first case, the trader will not be able to withdraw the entire asset in which he has decided to invest because it was purchased with the capital of the exchange

    In the second case, he can withdraw his funds at any time and when he deems it more appropriate.

13. The trader wishing to invest their funds by leveraging the Currency.com platform will be able to use different portfolios, including USD.cx, EUR.cx, GBP.cx, BYN.cx, RUB.cx, BTC and ETH.
    To make the concept clearer, just consult the next note.
    • Funds represent the total balance of completed transactions, as well as the net asset amount (excluding P&L), of pending trades in Leveraged Trading.
    • P&L represents the profits and losses on pending trades in Leveraged Trading.
    • Stocks = Funds + P&L. this formula reflects the amount of deposited funds, realized profit or loss, minus any fees charged and withdrawals made.
14. Leveraged crypto trading can be considered a speculative operation on a possible cryptocurrency exchange. The stock trading margin may differ from it only by the amount of leverage available. There are currently over 5100 cryptocurrencies (most of them non-competitive) and around 20,000 cryptocurrency exchanges available for trading. And if a year ago none of the most famous platforms did not offer leveraged trading, today it is paradoxically difficult for them to compete without using this service.
15. Leveraged trading is much riskier than conventional trading. And when it comes to cryptocurrencies, the risks are even higher. This strategy is not suitable for beginners, but if you want to experiment with it, it is advisable to start with small investments. The ability to analyze charts, identify trends and identify entry and exit points will not eliminate the risks associated with trading on margin, but will help you better anticipate them.