Although not without risk, leverage is an important feature utilized by many traders when trading futures contracts.
This article looks at the leverage function on BTSE Futures. Meanwhile, to learn more about how to trade futures on BTSE, take a look at this complete guide.
What Is Leverage?
Leverage is used by traders as a way to grow their capital – made possible thanks to borrowed funds – in order to be able to increase their positions.
When traders use leverage, they are essentially practicing margin trading. Margin refers to the collateral used to be able to support borrowed funds.
In simple terms, leverage works as a sort of multiplier of your capital. On BTSE, you can choose your leverage from a range of nine options – from “Cross” (same margin for all positions) to 1x all the way up to 100x.
Every time you set a leverage level other than Cross, your position will automatically switch to the so-called “isolated” mode. The margin refers to a specific futures contract, the one selected from the “Futures” section.
With leverage being a sort of multiplier, keep in mind that the higher the leverage, the lower the margin required; the lower the leverage, the higher the margin required.
Moreover, you need to consider that margin is also used to maintain your leveraged positions.
So that also involves different levels of risks – the lower the margin, the more likely liquidation, partial liquidation, or forced market buy/sell can occur to your positions.
For this reason, leverage is usually used by experienced traders. It allows you to multiply your profits, but it can also lead to losing your funds just as easily. That’s why leverage has to be used according to specific strategies and why it can be adjusted.
Leverage on BTSE Futures: How It Works and How to Adjust It
Leverage on BTSE Futures is not more complicated than what we would describe in general terms: you will be able to borrow funds to increase your collateral for all positions or for specific futures contracts, and you will need to consider your available margin to set profitable strategies.
As noted earlier, you can adjust leverage by simply selecting the option and choosing different levels of leverage, from Cross to 100x.
With leverage, the focus should be on risk: BTSE Futures allows you to better manage your risks thanks to the “Risk Limit” feature, as shown below:
Risk Limit tells you how many contracts you can hold. You can change it, but every time you increase it you have to consider that you will need a higher initial margin and a higher margin for maintenance. So keeping this indicator low means that you can withstand some risk and avoid liquidation, partial liquidation, and forced market buy/sell of your positions.
But when it comes exclusively to leverage, you can limit your risk in a fairly easy way.
In fact, the easier and more obvious way to reduce liquidation risks while using margin trading – or leverage – is increasing margin. As mentioned, by increasing the collateral available for your position, leverage will not need to be too high.
It is important to keep in mind that cryptocurrency futures trading is subject to high risk with potential losses due to the market’s volatile nature. Of course, every trader has a different attitude towards risk, so it is equally important to consider the pros and cons of margin trading in every strategy.
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Note: BTSE Blog contents are intended solely to provide varying insights and perspectives. Unless otherwise noted, they do not represent the views of BTSE and should in no way be treated as investment advice. Markets are volatile, and trading brings rewards and risks. Trade with caution.