Leverage: A multiplication of the Initial Margin by x to give the total position value.
In crypto Margin trading, Leverage is an important feature of the Perpetual Contract. On BTCMEX you can trade BTC/USD Perpetual Contracts with up to 100x Leverage. It allows traders to open positions and place orders that are significantly larger than their Initial Margin. Initial Margin is the amount a trader uses as the collateral to open a position. Any profit or loss is always applied to the Margin. The Leverage magnifies profit or loss. High Leverage is one of the main profit-making instruments in cryptocurrencies Derivatives trading.
The money on a trader’s account is not exactly the money used to make trades. That money serves as collateral towards a loan an exchange is giving users to trade with. This allows traders to make much larger trades than they would with just their own money.
Here is an example, a trader goes Long USD 1,000 worth of Bitcoin (BTC/USD currency pair). He puts USD 200 as collateral, and USD 800 is the result of the Leverage applied to the position. If a trader goes Long (buys) and the price of BTC to USD rises and after closing his position his position value went up from USD 1,000 to USD 2,000. He would pay back the exchange’s USD 800 and walk away with USD 1200. He put 200 dollars and made 1,000 dollars profit using Leverage. If he hadn’t used margin trading, his total position would have been USD 400, with only USD 200 profit.
Please, Note! Any profit/loss is applied proportionally to the Margin.
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