Thinking that the Bitcoin price will go up 20%, you might buy $100 worth of the cryptocurrency. If it does, you’ll end up with a profit of $20. But what if you only have $100 in your account and decide to trade with leverage and purchase $1,000 worth of Bitcoin? You’ll end up with $200, double your original investment.
If you have $100 in your account but think that the price of Bitcoin will go down, you might want to consider becoming a short seller. This strategy is known as margin trading, allowing you to magnify the gains you experience through borrowed funds. Margin trading is commonly used in Crypto, perpetual swap markets, and futures.
Several major exchanges offer margin trading options, such as FTX, Bybit, and Binance. Their fees and leverage ratios vary depending on the type of strategy and the market. That said, it’s important to understand that margin trading can add additional risk due to the volatile crypto market.
Leverage trading has seen massive popularity in 2023. Here’s everything you need to know about how to profit from this practice!
Leverage Trading on Bybit
The term margin refers to the balance the trader must maintain to enter a leveraged position. The Initial Margin is the sum a trader has to deposit to open a position. It is calculated by considering the size of the position and the leverage. The maintenance margin is the minimum amount a trader must maintain to hold a leveraged position.
Leverage trading allows a trader to open short and long positions on the same asset. They can also take more leverage than the underlying asset. If the total leverage exceeds 1x, the loss and profit will be accelerated.
1. Margin Trading
Bybit allows traders to use either isolated or cross-margin mode. With the latter, the available margin for each asset type can be used to prevent liquidation.
Under isolated margin mode, the maximum loss that a trader can take is limited to the initial and extra margin. No additional margin will be drawn if a position gets liquidated. This method can help traders reduce their effective leverage and improve the liquidation price.
They can manually append additional margins to an isolated position to increase their effective leverage. Once the leverage adjustment is made, all the previously posted extra margins will be reset to 0.
Cross margin is enabled by default. When traders want to set the desired leverage for a position, they can opt for isolated margin mode. The higher the leverage, the lower the required margin.
|Pros of Margin Trading||Cons of Margin Trading|
|Highly devoted to Margin Trading||Complicated for new users|
|Boast intuitive and functional features||Huge fees|
|Trading with KYC Verification||Highly risky|
2. Leveraged Tokens
The Bybit Leveraged Token is a derivative product that exposes investors to the underlying asset. As a result, it can be used to hedge against potential losses and enhance profitability. The net asset value of the product is computed based on the underlying asset’s price movements.
You can trade the leveraged token in Bybit in two ways. First, you can buy, sell, or trade it through subscription and redemption methods. This whole process will take place directly through your Bybit Spot Account.
The basket of contracts comprising the Leveraged Token represents the various positions investors hold in a portfolio of perpetual contracts. Since Leveraged Token products are heavily used in the traditional financial market, almost all investors are eligible to invest in them. However, remember that you can suffer losses due to market volatility, so be prepared!
|Pros of Leveraged Tokens||Cons of Leveraged Tokens|
|No liquidation risks||Volatility decay susceptibility|
|Compounding interest||Extra fees|
|Quick and simple navigation||Short-term investments|
3. Inverse Perpetual
According to Bloomberg, around 90% of the trading volume of Bitcoin futures in May 2022 was for perpetual contracts. These long-term contracts allow traders to take large positions in the cryptocurrency market. They have become very popular among the trading community due to their ability to generate income from the price movements of underlying cryptocurrencies.
Bybit was established in 2018 to provide crypto traders with the best possible derivatives exchange. It features many USDT, USDC, and crypto-backed perpetual contracts, such as BTC, BNB, SOL, and ETH. In addition, its funding fee is paid every 8 hours, allowing you to leverage up to 100x.
Since perpetual contracts don’t expire, their value can vary from the spot rate. For instance, in a bull market, a perpetual contract for Bitcoin would trade at around $30.1k, even if the price of BTC is currently trading at around $30k in the spot market. Therefore, to avoid experiencing a loss, exchanges establish a price anchoring mechanism known as BTC funding rates.
|Pros of Inverse Perpetual Contracts||Cons of Inverse Perpetual Contracts|
|No expiration||Costs of funding rate|
|High leverage opportunities||Amplified losses|
|High liquidity||Risk of counterparty|
Leveraged trading has plenty of benefits, especially from a security aspect. However, there’s also a huge risk attached to it. If you have just started crypto trading, it’s best to learn and test the market before investing in leveraged margins. Look at all margin trading platforms, compare them, and then decide which one you should go with.
Bybit is dedicated to providing its users with the best possible margin trading services. It offers various types of contracts and a reasonable fee. Its features are designed to help traders easily manage their accounts. If you are an intermediate margin trader looking for a simple yet powerful platform, then Bybit is for you.
We’ve summed up all sorts of leveraged margins with which you can start crypto trading. But, before trying your luck, make sure you’re fully prepared for it to avoid maximum risk in the future.