Leverage trading refers to using a smaller amount of capital to control a larger amount of assets. In a crypto context, you might use $100 worth of Bitcoin to trade $200, $500, $1,000 or more of the same (or different) asset. Leverage trading can help you maximize your gains but also amplifies price changes in any direction, making trading swings more volatile.
But leverage amplifies volatility, so it’s also possible to lose money faster than with non-leveraged trades. Here’s what you need to know about crypto leverage and margin trading before you dive in.
| Kraken | Bybit | Phemex | |
|---|---|---|---|
| US Leverage Trading | Yes (qualified traders) | No | No |
| Max Leverage | 5:1 (5x) | 100:1 (100x) | 100:1 (100x) |
| Opening Fee (BTC) | 0.01% + Maker/Taker Fees | Maker/Taker fees only | Maker/Taker Fees Only |
| Maker/Taker Fees (Standard Account BTC) | Maker/Taker 0.02%/0.05% | Maker/Taker 0.01%/0.06% | 0.01% / 0.06% |
| Rollover/Interest Fee (BTC) | 0.01% (Every 4 hours) | 0.06% (Daily) | Market Dependent (Charged every 8 hours) |
| Common Asset Pairs | BTC/USDT ETH/USDT DOT/USDT ADA/USDT | BTC/USDT XRP/USDT LTC/USDT ETH/USDT | BTC/USDT XRP/USDT LTC/USDT ETH/USDT |
What Is Leverage Trading Crypto?
When leverage trading crypto, you’re using your capital to control a larger amount of an asset than you could with non-leveraged trading, thus multiplying your gains but also creating more volatility risk.
With leverage trading, in most cases, you’re using derivative contracts calledperpetual futuresto maximize your gains, posting an asset as collateral. With this structure, you’re trading on the value of the traded asset rather than the actual asset, using an asset you own as margin (collateral) for potential losses.
Leveraged trades can be either long or short, with long leveraged trades betting on price appreciation and short leveraged trades betting on falling asset prices.
Leverage trading crypto offers higher potential gains combined with increased risks, but there are ways to manage risks to make leverage trading safer.
Best Crypto Exchanges That Offer Leverage Trading
In the US,Kraken.comsupports leverage trading. However, both exchanges limit leverage trading to those who qualify under the definition of Eligible Contract Participant (ECP) as defined in theCommodity Exchange Act,section 18 A (xi). This limits participation to those with $10 million in discretionary investment funds in most cases. Availability of leverage trading may also vary by state or face restrictions in other countries, like the United Kingdom.
Most international traders not governed by US regulations can access and trade with leverage onBybit.
| Exchange | US Leverage Trading | Max Leverage | Margin Limit |
|---|---|---|---|
| Kraken | Yes (ECP traders) | 5:1 (5x) | Varies by account level and asset type |
| Bybit | No | 100:1 (100x) | $1,000,000 (varies) |
| Phemex | No | 100:1 (100x) | Varies by account level and asset type |
1. Kraken
| US Leverage Trading | Max Leverage | Margin Limit | Initial Margin | Maintenance Margin |
|---|---|---|---|---|
| Qualified ECP traders only | 5:1 (5x) | Varies by account level and asset type | Varies by asset, leverage, and trade size | Varies by asset, leverage, and trade size |
As the longest-established exchange in our roundup, Kraken’s roots date back to 2011, building a trusted name through consistent service, low fees, and flexible funding options.Krakenis among two exchanges to offer margin trading to qualified US traders, providing leverage opportunities as high as 5:1.
Pros
Pros- Leverage available to US traders
- 50+ cryptocurrencies
- Low trading fees on larger leveraged trades
Cons
Cons- Limited leverage for US traders (5:1 max)
- ECP certification required for US traders
- Complex trading interface
Leverage Trading Crypto On Kraken
Kraken does not use separateexchangesfor US and international traders, but US traders must be ECP-certified to leverage trades with margin on Kraken. Qualified US traders with intermediate or pro accounts can use leverage of up to 5:1.
Initial margin requirements start at 20%. Maintenance margin requirements offer some flexibility with a floor at 40% or lower, at which point Kraken will liquidate your margin collateral. Between 40% to 80% of your initial margin, liquidation is at Kraken’s discretion.
Margin limits on Kraken vary by asset type and account level but max out at $7,500,00 USD, split between all margin trades.
With over 100 trading pairs available for margin trades, you’ll find easy access to popular cryptocurrencies such as DOGE, BTC, ETH, LINK,AVAX, and more. Max leverage varies by trading pair, running from 2x to 5x.
Trade On Kraken
Read Our Kraken Review
2. Bybit
| US Leverage Trading | Max Leverage | Margin Limit | Initial Margin | Maintenance Margin |
|---|---|---|---|---|
| No | 100:1 (100x) | $1,000,000 (varies) | Starting at 1% | Starting at 0.5% |
A relative newcomer in our roundup,Bybithas made a name for itself in the crypto community by offering higher leverage ratios when other exchanges have tightened the reins. In its brief history since 2018, Bybit’s mix of low-cost trading, leverage trading options, and even social trading have helped Bybit become a leading choice for crypto traders.
Pros
- Up to 100x leverage
- No-risk test environment
- Know Your Customer (KYC) not required
Cons
- Not available to US IP addresses
- Can’t deposit fiat currencies
- Challenging for beginners
Leverage Trading Crypto on Bybit
Bybit’s exchange is not available to US traders, as identified by IP address. Traders in the US or other restricted countries may be able to access the platform through a VPN service. However, this workaround may also violate local laws or financial regulations.
Although other well-known exchanges have reduced maximum leverage ratios, Bybit still offers up to 100:1 leverage. The exchange also does not require Know Your Customer details (KYC), a process used to verify the identity of traders. As a related caveat, traders also can’t deposit from a bank into Bybit. But you can deposit crypto purchased elsewhere or buy crypto with a credit card.
Bybit’s initial margin requirements start at just 1% (100:1 leverage), with a base maintenance margin requirement of 0.05%. However, for some assets and for larger trades, initial margin and maintenance requirements are higher to reduce risk, also reducing leverage.
You’ll find the most trading pairs on Bybit when using USDT (Tether), which lets you easily trade dozens of popular crypto assets. But if you’re looking for an easy trade, Bybit offers nearly 40 leveraged tokens to power up your trades without margin.
Trade On Bybit
Read Our Bybit Review
If you want to learn even more about which platforms are best for trading, check out our guide oncrypto research tools.
Benefits and Risks of Leverage Trading Crypto
Benefits
Leverage trading can make trading more efficient, assuming your trades are profitable.
- Greater Potential Gains:The leverage ratio drives your gains. For example, with 5x leverage, you can purchase $500 of assets with $100 of margin. Compared to non-leverage trading, you can increase your gains by 5 times as well, with less trading costs.
- More Efficient Use Of Capital:By using leverage, you can take on more trades as you find opportunities. This allows you to diversify while also maximizing earning potential on trades.
- Hedge Your Portfolio:Using leverage and margin allows you to hedge your portfolio if, for example, you keep a core position but think the short-term price direction might trend downward.
- More Nimble Trading:Leverage and margin allow you to deploy capital quickly to take advantage of trading opportunities. Rather than moving or selling assets to make a trade, you have the fast option to use leverage that requires a smaller commitment.
Risks
As you might expect, the outsized potential gains of leveraged trades come with added risks compared to non-leveraged trading.
- More Volatility:With leveraged trading, your trading balance can change quickly because leverage multiplies the velocity of moves. A $500 move in a non-leveraged trade would be a $2,500 move in a 5x leveraged trade.
- Possible 100% Margin Loss:In leveraged trades, a dip in value could cause a margin call (a demand to deposit more collateral) or liquidation of your account (the exchange sells your collateral to cover losses for the trade).
- Margin Calls Based On Margin Value:If the value of your margin falls, you might need to add more collateral or face liquidation (forced sale).
How To Manage Risk
In non-leveraged trades, it’s less likely to lose your entire investment on a trade, and if a trade is trending in the wrong direction, you usually have plenty of time to react. However, with leveraged trades, you can lose your entire margin quickly and with little or no warning of trouble. Fortunately, several strategies can help you manage risk to protect your downside.
- Take Profits:When setting up your trade, look for an option to take profits at a price you choose. Take-profit orders automatically close the trade at a price you set. By locking in a profit, you remove your risk if the market later switches direction suddenly.
- Use Stop Losses:Similarly, look for an option to set a stop-loss value. A stop loss does what it says on the tin, selling your position if losses reach a level you choose. This step helps keep losses manageable so you can keep some capital available for future trades.
- Learn Charting Techniques:Considerlearningsome charting techniques that can help you understand probable future price moves. Chart and pattern analysis can help reduce trading risk.
- Limit Your Leverage Ratio:Higher leverage ratios create higher potential gains but also bring more risk. For example, a 10% drop in value on a 10x leveraged trade could force the exchange to liquidate your collateral. Price moves of 10% or more aren’t unusual in the crypto trading world, so higher leverage brings a greater risk of liquidation.
- Consider Isolated Margin:Margin trades use either cross margin or isolated margin. Cross margin can put other account assets at risk if the price direction doesn’t favor your trade. As its name suggests, isolated margin limits your margin exposure to the margin you’ve assigned to a particular trade.
- Trade High-Volume Assets:Bitcoin and similar popular crypto assets that trade with high volume typically trade with a smaller spread between bid and ask prices compared to thinly traded assets. A vibrant market can reduce volatility risk.
- Limit Your Investment Amount:As with all investments, never bet more than you can afford to lose. With leverage trading, this can be doubly important.
How Trading Crypto With Leverage Works
If you’ve ever used a long wrench on a stubborn bolt, then you understand leverage. Moving further away from the fulcrum (pivot point) makes it easier to move an object. In trading, the concept works similarly, with greater leverage ratios letting you make larger trades with the same amount of capital.
By comparison, in non-leveraged crypto trades, when you invest in a coin or token, your profit or loss is one-to-one, without a multiplier. The amount by which the price changes when you sell or trade to another asset is your profit (or loss) on the trade.
In a non-leveraged (1:1) trade, $500 buys $500 worth of assets. But by increasing the leverage ratio, that same $500 can control $2,500 in assets (5:1 leverage) or $5,000 in assets (10:1 leverage) or even $50,000 (100:1 leverage).
| Amount Invested (Margin) | Leverage Ratio | Margin Requirement | Trade Value |
|---|---|---|---|
| $500 | 2:1 | 50% | $1,000 |
| $500 | 5:1 | 20% | $2,500 |
| $500 | 10:1 | 10% | $5,000 |
| $500 | 100:1 | 1% | $50,000 |
The Difference Between Leveraged And Non-Leveraged Trading
Non-leveraged trades typically involve spot purchases of cryptocurrency in which you can take possession of the asset you’ve purchased. For example, if you purchase $500 of Bitcoin on your favorite exchange, you can then move that Bitcoin to another wallet or use it for payments, etc.
With leveraged trades, you’re usually trading a futures contract rather than buying an asset that you can move to another wallet,stake, or spend. The asset price in a crypto futures contract typically mirrors the price of the non-derivative asset. If Bitcoin is trading at $20,000, Bitcoin futures also trade at $20,000. Many exchanges also offer perpetual futures (or perpetual swaps) for trading, which are futures contracts that don’t require delivery and don’t expire on a fixed date.
By using leverage, you can realize returns equal to or greater than your investment, even with relatively small price moves. In the table below, a 10% increase in the value of Bitcoin yields a 10% profit on a $1,000 investment without using leverage. However, the same investment of $1,000 with 20:1 leverage yields a $2,000 profit, a 200% return.
| Capital | Non-Leveraged | 20:1 Leverage |
|---|---|---|
| $1,000 Capital | $1000 buying power | $20,000 buying power |
| 10% price gain | $100 profit | $2,000 profit |
Here’s a comparison of the same $1,000 in capital deployed with various leverage ratios.
| Leverage Ratio | Margin Requirement | Buying Power | Sale Value | Profit |
|---|---|---|---|---|
| 1:1 (non- leveraged) | $1,000 investment, no margin required | $1,000 | $1,100 | $100 |
| 5:1 (5x) | $1,000 | $5,000 | $5,500 | $500 |
| 10:1 (10x) | $1,000 | $10,000 | $11,000 | $1,000 |
| 20:1 (20x) | $1,000 | $20,000 | $22,000 | $2,000 |
| 100:1 (100x) | $1,000 | $100,000 | $110,000 | $10,000 |
The profit shown does not include trading fees. Platforms may reserve trading and margin fees before executing the trade, reducing your leverage slightly.
Many exchanges that support leverage offer crypto trading in pairs. For example, you might choose to trade USDT (Tether), a stablecoin that tracks USD value, for Bitcoin using 10x leverage. This trading pair would be BTC-USDT.
In this example, you decide to deposit$2,000of USDT. With a10xleveraged trade, your$2,000investment gives you$20,000in purchasing power. Your$2,000investment becomes your margin in the trade, meaning your$2,000in USDT is used as collateral to cover losses.
You now have$20,000in BTC with$2,000posted as margin.
Let’s say BTC increased in value by5%.
$20,000x1.05=$21,000
If you sell at this price, the borrowed Bitcoin is returned, and your profit is$1,000. You keep your margin of$2,000, but this amount isn’t part of your profit. It remains your capital because the trade was profitable.
The math is pretty simple for profitable trades, but what if the trade went south? Remember, your margin is collateral.
Let’s say the price of BTC went down by5%instead.
$20,000x.95=$19,000
If you close the trade here, your loss is$1,000. Your margin of$2,000is reduced to cover the loss, and you exit the trade with$1,000of capital rather than$2,000.
You’ll also pay trading fees, covered later, which increase your costs for the trade.
| Leverage | Starting Capital | Profit (Or Loss) | Profit Or Loss Percentage | Ending Capital |
|---|---|---|---|---|
| Non-leveraged 5% gain | $2,000 | $100 | 5% | $2,100 |
| 10x leveraged 5% gain | $2,000 | $1,000 | 50% | $3,000 |
| Non-leveraged 10% loss | $2,000 | ($100) | -5% | $1,900 |
| 10x leveraged 5% loss | $2,000 | ($1,000) | -50% | $1,000 |
How Leverage Can Amplify Both Gains And Losses
In the table above, you can see that leverage can amplify both gains and losses. Increasing leverage amplifies gains and losses further.
Let’s say you decide to increase leverage to100:1 (100x). In this case, your$2,000of capital can purchase$200,000in Bitcoin.
$2,000(capital) x100(leverage ratio) =$200,000in purchasing power
A5%swing in price at 100x leverage can have impressive results, but not always in a good way.
If BTC rises by5%, your profit on the trade is$10,000. But if the price drops, you can lose your collateral quickly. The exchange automatically sells your collateral to cover the loss, and the trade is closed.
| Leverage | Starting Capital | Profit (Or Loss) | Profit Or Loss Percentage | Ending Capital |
|---|---|---|---|---|
| Non-leveraged 5% gain | $2,000 | $100 | 5% | $2,100 |
| 10x leveraged 5% gain | $2,000 | $1,000 | 50% | $3,000 |
| Non-leveraged 10% loss | $2,000 | ($100) | -5% | $1,900 |
| 10x leveraged 5% loss | $2,000 | ($1,000) | -50% | $1,000 |
In the table above, the last scenario (100xleveraged5%loss) would result in a$10,000loss, mathematically speaking. However, the exchange would liquidate your trade before reaching that point, resulting in a loss of some or all of your$2,000margin.
Because we are using100xleverage, a1%move down in price can cause a 100% loss of collateral. Depending on the exchange margin rules, you may even see your collateral liquidated before reaching a1%drop in price.
Example Of A Leveraged Long Position
In leveraged crypto trades, you can choose to buy long or sell short. Buying long is a bet on an increase in value.
The previous section details several examples of leveraged long positions compared to non-leveraged long positions. Long purchases are straightforward in that you’re just buying an asset or contract and later selling at a profit or loss.
Example Of A Leveraged Short Position
Selling short is a bet that prices will go down. In a short trade, you’re borrowing an asset to sell, which you’ll later repurchase to settle the trade. For example, you might decide to short-sell Bitcoin at$20,000, expecting the price to drop to$19,000. Without leverage, you would earn the difference between the two values at the end of a successful trade, or$1,000for each Bitcoin you sold short.
However, as with long-leveraged trades, short-leveraged trades amplify gains and losses.
Let’s say you decide to short Bitcoin using$2,000and10xleverage. Your$2,000allows you to borrow (and sell short)$20,000in Bitcoin, or about one Bitcoin at the time of the trade.
If you sold Bitcoin at$20,000to open your leveraged short trade and Bitcoin later drops to$15,000, your trade is in the black by$5,000, or25%.
However, if Bitcoin rises to$25,000, you’ve lost$5,000on the leveraged trade, at least theoretically. In a real trade, the exchange will liquidate your collateral before reaching a$5,000loss. You started with$2,000capital, which the exchange will automatically sell when Bitcoin rises to$22,000(likely sooner). In this situation, the exchange also repurchases and returns the Bitcoin you borrowed, closing out the trade.
What It Costs To Use Leverage
Leverage trading can offer outsized returns, but expect to pay some additional fees.
| Fees | Typical Amount | Detail |
|---|---|---|
| Opening Fees | 0.02%, varies by asset | Fee to open a leveraged position |
| Rollover Fees | 0.02%, varies by asset | Interest fee for keeping a position open, typically charged per 4 hours |
| Liquidation Fees | 0.075%, varies | Fee charged for liquidation sale (usually equal to the taker fee) |
| Maker Fees | 0.025%, varies | Transaction fees are lower for orders that make liquidity (limit orders) |
| Taker Fees | 0.075%, varies | Transaction fees are higher for orders that take liquidity (market orders) |
Focus on opening and rollover fees because these fees are unique to leverage trading. Exchanges use maker and taker fees in non-leveraged trades as well.
What Is Margin Trading?
Most leveraged trades in crypto utilize margin, which refers to the collateral you use to build leverage. By using margin, it’s possible to turn a trade into a math equation in which the exchange automatically sells all or part of the collateral to cover losses, thereby eliminating its risk of non-payment. Most leverage trades in the crypto space use margin, but not all. To use leveraged trading, you’ll need a margin account in most cases.
Margin Trading Vs. Leverage Trading – What’s The Difference?
In most leveraged trades, margin creates the leverage. Because margin is collateral, the exchange can facilitate the trade without creating risk for itself. Think of the term “margin of safety.” In this case, though, the safety is for the exchange.
Margin trading refers to trades funded by the exchange that use your assets held by the exchange as collateral. Margin means you’re borrowing. But not all leverage trading uses margin. In the crypto world, leveraged tokens serve a similar role to leveraged ETFs in traditional finance, letting traders use leverage without using margin.
Margin and leverage have an inverse relationship. Higher margin requirements equal lower leverage and vice versa. A trade with50%margin has low leverage(2:1 or 2x). A trade with5%margin has high leverage(20:1 or 20x).
The key takeaway is that margin refers to borrowing to create leverage and that leverage acts as a multiplier, but you choose how much leverage to use in a trade. The terms are related but not synonymous. You can even margin trade without leverage(1:1 ratio), a strategy you might employ when short selling.
| Situation | Margin Trading | Leveraged Trading |
|---|---|---|
| Borrows from the exchange | Yes | Not always (i.e., leveraged tokens) |
| Requires a special account type | Yes | Not always (i.e., leveraged tokens) |
| Uses collateral | Yes | Not always (i.e., leveraged tokens) |
| In a 20x trade | 5% margin | 20:1 leverage |
How Margin Calls Work
In most leveraged trades, your margin is collateral for the trade. The term “margin call” refers to when an exchange notifies the trader, usually by email — not a phone call, that they need to add more collateral.
The need for more collateral can occur in two ways:
- Your trade is losing money.If the loss in a trade falls below a predetermined threshold, the exchange may require that you add more collateral or face liquidation.
- Your collateral has fallen in value.If the value of your collateral secures the trade, then a drop in value of the margined asset can result in a margin call, The exchange needs you to deposit more collateral.
For example, if you used$2,000in Bitcoin to leverage a$20,000 (10x)long ETH trade, you might get a margin call for one of these reasons:
- The value of ETH fell.Margin requirements for this trade are 10%. If the price of the purchased asset falls, you may get a margin call before reaching the 10% threshold.
- The value of Bitcoin fell.If you’re using Bitcoin as collateral and Bitcoin falls in value, you might not have enough collateral, resulting in a margin call.
Exchanges use two margin requirements: initial margin and maintenance margin. For example, FTX.us requires10%initial margin to enter a margin trade. However, FTX.us will liquidate the margin and close the trade if the margin value falls to5%of the trade. The latter is called a maintenance margin, which is usually set at50%of the initial margin.
To Sum It Up
Leverage trading can be risky business because losing your entire investment is relatively easy, particularly with higher leverage ratios that create more volatility. However, risk and reward go hand in hand, so there’s also an opportunity to achieve outsized returns.
Most traders are likely best served by learning the ropes with non-leveraged trading before opening a leveraged trade. As you gain more experience, you can add more leverage according to your budget and risk tolerance.
Frequently Asked Questions
The leverage ratio 100:1 or 100x refers to controlling 100 times the value of your collateral in a leveraged crypto trade. For example, with $1,000 in collateral (margin), you can trade up to $100,000 in assets.
With 10x leverage, you’re multiplying your buying power by 10. As an example, in a 10x trade, $1,000 can control $10,000 in assets. However, if the trade loses money, the initial $1,000 is at risk.
Some exchanges offer leveraged tokens that allow you to use leverage without margin for short-term trades. However, availability may vary by region.
Several crypto exchanges offer margin trading that allows you to use collateral (margin) to control a larger amount of assets by choosing a leverage ratio, such as 2:1, 5:1, or 10:1. Your margin becomes security in the trade, meaning if the trade loses money, your margin may be used to cover losses.
Like non-leveraged spot trades, leveraged trades produce a profit or loss. As a trader, you’re responsible for paying taxes as required on investment gains or losses.
Eric Huffman
Staff Writer
Eric Huffman is a staff writer for MilkRoad.com. In addition to crypto and blockchain topics, Eric also writes extensively on insurance and personal finance matters that affect everyday households.
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Shannon Ullman
Managing Editor
Managing editor working to make crypto easier to understand. Pairing editorial integrity with crypto curiosity for content that makes readers feel like they finally “get it.”
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I'm well-versed in leverage trading within the crypto space. Here's a breakdown of the concepts used in the article:
Leverage Trading in Crypto: Leverage trading allows controlling a larger asset amount with a smaller capital. For instance, using $100 of Bitcoin to trade $200, $500, $1,000, or more. It amplifies gains but also magnifies price changes, increasing volatility.
Exchanges Offering Leverage Trading:
- Kraken: Supports leverage trading for qualified US traders at 5:1 leverage. Offers margin trading to those with ECP certification.
- Bybit: Offers leverage up to 100:1 but not available for US traders. Has low-cost trading and allows leverage without KYC.
- Phemex: Similar to Bybit, offers 100:1 leverage but with varying account level limitations.
Features of Each Exchange:
- Kraken: Established in 2011, offers low fees, flexible funding, and margin trading for qualified US traders.
- Bybit: Started in 2018, allows high leverage and social trading but isn't accessible to US traders directly.
- Phemex: Provides high leverage trading but also has account-level restrictions.
Benefits and Risks of Leverage Trading:
- Benefits: Higher gains, efficient capital use, hedging, and nimble trading.
- Risks: Increased volatility, potential 100% margin loss, margin calls based on margin value.
Risk Management Strategies:
- Take Profits: Set predefined profit levels.
- Stop Losses: Automatically sell at a set loss.
- Charting Techniques: Analyze charts to predict price movements.
- Limit Leverage Ratio: Higher leverage means higher risk.
- Isolated Margin: Limit exposure to a particular trade.
- Trade High-Volume Assets: Less volatile than low-volume assets.
- Limit Investment Amount: Never invest more than affordable to lose.
Understanding Leverage in Trading: Leverage enables larger trades with less capital. Non-leveraged trades offer a 1:1 ratio of profit/loss.
Margin Trading vs. Leverage Trading:
- Margin Trading: Utilizes borrowed funds from the exchange.
- Leverage Trading: Doesn't always involve borrowing, but it amplifies trades.
Margin Calls and Requirements: Exchanges may issue a margin call if a trade loses value or if the collateral's value falls below a threshold.
Costs of Using Leverage: Fees like opening, rollover, liquidation, maker, and taker fees are involved.
Taxation and Responsibility: Traders are liable for taxes on gains or losses from leveraged trades.
This comprehensive overview should give a solid understanding of leverage trading in the crypto market!
