Crypto leverage is a technique that lets you increase the size of your positions through margin trading. In practice, you borrow an additional amount of money to open a position. Traders use cryptocurrency leverage to generate larger returns, but they also run the risk of suffering huge losses.
1. Crypto Leverage by Broker Compared (Vantage, eToro)
Trading cryptocurrencies has become a major trend and offers plenty of profit potential. But before getting started, a beginner needs to understand the two ways of trading.
First, you can simply invest in cryptocurrency, which means putting money to work over the long term. On the other hand, there is cryptocurrency trading, which involves buying and selling within minutes or hours to generate profits.
In both cases, it is important to do it through the best platforms, including Vantage and eToro.
Here is a table presenting the two brokers and their key features.
Broker | Cryptocurrencies | Crypto Leverage |
 | Bitcoin, Bitcoin Cash, Tether, Binance Coin, Cardano, Dash, EOS, Ethereum, Ethereum Classic, IOTA, Litecoin, Neo, Stellar, Tezos, Tron, XRP and Zcash | |
 | Bitcoin, Ethereum, Libra, Bitcoin Cash, Dash, Ripple, Tether |
|
 | Bitcoin, Ripple, Litecoin, Ethereum, Dash, Neo, Monero | 2:1 |
In trading, cryptocurrency leverage varies depending on the broker and the regulations it follows. Vantage offers its users leverage of up to 1:20, giving them substantial profit potential. eToro, on the other hand, prioritizes the safety of your funds by capping its leverage at 2:1.
If this topic interests you, also see “Best Brokers” and “Kraken Leverage“.
2. Leveraged Crypto Trading: What Are the Risks?
Investors who trade cryptocurrencies with leverage expose themselves to risk. The real danger is losing part or all of the capital invested. For this reason, it is recommended to reduce your leverage when trading cryptocurrencies.
The cryptocurrency market is highly volatile. If you are still a beginner, the advice above applies directly to you: choose low leverage. Doing the opposite could very quickly wipe out your entire trading capital.
Ending Up in Debt to Your Broker for Life
Misusing leverage can lead to consequences worse than losing your capital, such as the possibility of going into debt. In general, the risk is higher when a trading account has no negative balance protection. This means the trader must take care not to lose more than their starting capital.
When this condition is not met or the rule is broken, the losses affect not only the trader but also their broker.
You opened a €2,000 trade with 1:5 leverage. If it goes against you, you lose your €2,000 plus the €8,000 that belongs to the broker. Your account will then show a negative balance of €8,000, which you will have to repay to your broker.
Mandatory Negative Balance Protection
This protection is only available to traders who hold accounts with ESMA-regulated brokers. When you sign up with a broker subject to these rules, you benefit from negative balance protection. This means you can use leverage without fear of ending up with a negative balance.
However, this protection only applies to retail clients. Professional clients do not have this luxury and must use leverage at their own risk, with their money management as their only safeguard.
A High Percentage of Capital Lost to Margin Calls
Professional traders never trade without first carrying out an analysis. This gives them a clear idea of market movements so they can enter at the best moment and under the best conditions. However, things can get complicated, for example during market corrections.
This phase follows the impulse phase: markets reverse and the trend changes abruptly. In such a situation, the risk of losing both profits and capital comes with a margin call. Losses could be huge if the leverage used is high. Positions that might have turned a profit later will be closed by the broker, which wants to protect itself under these conditions.
3. How to Change Your Crypto Leverage
Brokers generally offer default leverage on their platforms. However, it can be changed if needed. In that case, both the broker and the trader have the right to change the leverage.
Changes Made by the Trader
When signing up, the trader is free to choose the leverage that suits them best. This change is only necessary if the default leverage set on the platform does not meet their expectations.
Likewise, investors can also change their cryptocurrency leverage well after signing up. If, after a period of use, they want to increase their profit potential, they can adjust their leverage. To do so, here are the steps for changing your crypto leverage:
– Go to the broker’s platform
– Log in to the members’ area or your account, depending on how the software is set up
– Click the “Change leverage” button
– Set the new leverage that suits you, then confirm
The change takes effect instantly, so the trader can then open a position straight away.
Changes Made by the Broker
Generally speaking, brokers have full authority to change a client’s account leverage if they consider it necessary. In emergencies, they can even do so without consulting the trader in order to protect their funds.
This becomes a necessity when the client’s position is losing money and could ruin the broker. Depending on how serious the situation is, the change may apply only to the open position or to the entire trading account.
Diversifiez votre patrimoineInvestissez dans l’artDes tableaux originaux, pièces uniques signées par l’artiste. Un actif tangible, loin des écrans et des cotations.Voir les tableaux →4. How Does Crypto Leverage Turn Into a Sledgehammer?
Leverage can turn into a sledgehammer at any point during a trade. The main cause of this reversal is the loss of the trader’s capital and of the funds borrowed from the broker through leverage.
When using leverage, the investor is in fact borrowing from the broker to increase their profit potential. This often allows the trader to take on very large positions. If the trade succeeds, the speculator wins twice over: they collect the profit generated by their own capital as well as by the broker’s money.
If, unfortunately, the trade ends in a loss, it affects not only the trader’s funds but also the broker’s. Because leverage has multiplied the losses, it becomes a sledgehammer.
 ★★★★★ 5/5 | Regulated by: CySEC, FCA We cover this topic in detail in Leverage in Islam – Halal Margin Trading, Trader Francophone. Year Founded: | Number of Cryptocurrencies: 17 Crypto Leverage: | Trade Crypto 67% of retail CFD accounts lose money. |
5. Can You Trade Crypto Without Leverage?
The answer is a definite YES! Given the risks involved, it is perfectly reasonable to consider trading cryptocurrencies without leverage.
For beginners, the virtual currency market can be hard to grasp in a short time. Newcomers, or anyone trading for the first time, are therefore advised to start without leverage. This way, they can take the time to get familiar with the crypto world and understand how it works. By doing so, they take fewer risks and reduce their losses.
However, trading cryptocurrencies without leverage requires certain conditions. First, you need substantial capital. With this approach, your trades are limited to buying coins within your financial means, then selling them and pocketing the profit. As a result, generating significant income requires a very large amount of money.
If you plan to make a $15,000 cryptocurrency trade, you will need to have that entire amount in your account.
The main advantage of this approach is a lower risk of huge losses. The trader also has better control over their capital.
6. How to Calculate Crypto Leverage
Calculating crypto leverage is simple and anyone can do it. It is important to know how to determine your leverage in order to assess the risks you are taking. As with the forex market and other financial assets, there is a formula for calculating your crypto leverage: divide the total amount invested by your total equity.
Crypto leverage = total amount invested / equity
This formula applies to almost all cryptocurrencies. To help you understand the concept, here are a few examples of crypto leverage calculations for the best-known virtual currencies.
Bitcoin Leverage
Bitcoin is the benchmark cryptocurrency and remains the first one ever created, in 2008, by the great Satoshi Nakamoto. Based on blockchain technology, it is not regulated by central banks. It stands out for its complete independence from the financial and monetary system. Another distinctive feature is its peer-to-peer network, directly tied to cryptography.
Working out your Bitcoin leverage is simple.
Suppose you make a $30,000 Bitcoin trade (buy or sell) while your own funds amount to $3,000. To find your leverage, simply divide $30,000 by $3,000: $30,000 / $3,000 = 10. Your leverage is therefore 1:10.
Ethereum Leverage
Ethereum, like Bitcoin, is a very popular currency on the markets and is one of the financial assets available for CFD trading. You can therefore use leverage to invest in Ethereum.
To determine your leverage, use this example:
Equity = $20,000
Open position (amount invested) = $120,000
Leverage = $120,000 / $20,000 = 6
In this case, your leverage would be 1:6.
Bitcoin Cash Leverage
Bitcoin Cash is a spin-off of Bitcoin. It was created to allow many more transactions per block at relatively lower prices than the original Bitcoin. Today, Bitcoin Cash is recognized as a traded cryptocurrency and counts among financial products. If you want to invest in this asset, here is how to determine your leverage.
With capital of $50,000 and a position size of $1,000,000, the leverage is 1:20. To find it, simply divide the position size by the capital.
Tether Leverage
Unlike other currencies, Tether is a stablecoin. Created by Tether Limited, it is based on a very simple principle: each coin corresponds to one US dollar held in a bank account linked to the company. As it is also listed on the markets, you can trade CFDs on this fairly profitable cryptocurrency.
Its leverage is calculated the same way as for the others: divide the amount invested by the capital credited to the account.
7. How to Use Leverage
Money management is a technique for managing your capital well. It involves trading with defined loss and profit limits, so the trader can take advantage of leverage without risking all their capital.
Good money management requires knowing how much margin your positions are using. Risk management also takes take-profit and stop-loss levels into account.
The take profit chosen by the trader should match the maximum gain they hope to lock in automatically if the market moves their way. Conversely, the stop loss is the maximum loss the trader is willing to accept automatically if their analysis turns out to be wrong.
To use leverage sensibly, three conditions must be met:
- Have substantial capital
- Keep your appetite for risk in check
- Develop a sound trading style
If you choose scalping, your profit targets should not exceed 10 pips. For this style, it is advisable to use brokers offering relatively high leverage to boost short-term gains.
For swing trading, moderate leverage is recommended because of the trading objective. Swing trading involves holding positions over a longer period, so there is no need to take big risks to succeed. This approach lets you withstand market swings over time without risking more than you can afford to lose.
8. What Are the Fees for Leveraged Trading?
The fees a broker charges depend on spreads, account type, commissions or the minimum deposit. They therefore vary from one trader to another and with the number of services used. However, some brokers charge their clients no fees at all for certain reasons.
It should also be noted that all brokers charge fees when a position is held open for more than one trading session. This applies to trades that remain open overnight or over the weekend.
These charges are known as swap or rollover fees. They represent interest the broker receives for carrying the position from one session to the next.
In leveraged cryptocurrency trading, if the position is closed before the end of the day, no swap is charged. This is a trading method many traders use, known as “day trading”.
9. What Is the Impact of Trading Crypto With Leverage?
Leverage was introduced to help traders generate more income without necessarily having large capital. Trading crypto with leverage lets you multiply your gains on a position without having to risk all your capital.
It is also essential to point out that the leverage level should not be chosen at random. You must first define your profit targets to know which level suits you best. It is also recommended to analyze market volatility before getting started in order to reduce your risk of losses.
Cryptocurrency | Market Price | Change | |
 | Bitcoin | US$53,501.31 |
|
 | Ethereum | US$2,053.71 |
|
 | Bitcoin Cash | US$853.17 | -24.44% |
 | Stellar | US$0.48 | -21.55% |
 | Tether | US$1.00 | 0.00% |