When you conduct virtual currency transactions on the exchange, you can choose to conduct transactions with high leverage, which is a feature of Bitcoin contracts. The use of leverage means that you do not need to invest 100% of the transaction limit when conducting contract transactions. On the contrary, you only need to deposit the initial deposit, which only accounts for a small part of the total contract amount. Leveraged trading allows you to use a small amount of assets to occupy a large exposure while managing risks. So, what exactly is leveraged trading? How to use lever tools safely? Next, let's have a look.

What is Leveraged Trading?

Leveraged trading refers to the use of small amounts of funds to invest more than the original amount, in order to obtain multiple returns relative to the volatility of investment collateral, or loss. In simple terms, in leveraged transactions, investors can use small amounts of funds to invest multiple times of the initial amount (to multiply the principal), so as to "make more with less, and double the profit", but at the same time, they must bear the risk of doubling the loss that may result.

Advantages of Leveraged Trading:

1. Risk can be flexibly controlled: the platform provides multiple leverage ratios (1, 2, 3, 10, etc.), so that the average daily risk return of investors is within the range provided by the leverage ratio, and you can easily master the level of risk yourself.

2. Double trading, easy to operate: traders can buy first and then sell, or sell first and then buy, and there is no limit to the currency of trading. Price limit orders and stop loss orders can be preset during trading to keep profits and control losses (stop loss in time).

3. High leverage ratio: To some extent, high leverage represents high returns. For investors with strong operating standards, profits or fluctuating profits can continue to use high leverage to increase positions under the premise of strict risk control, which makes it possible to promote windfall profits.

4. Low transaction cost: In general, the cost of leveraged transactions stipulated by the trading platform is very low.

5. Low entry threshold: the procedures for participating in leveraged transactions are simple and convenient, and each trading platform has different requirements for the minimum amount of capital for deposit account opening. The success of the transaction does not depend on the amount of capital, but depends on the level of operation. Small funds can also grow rapidly.

How to use lever tools safely?

First, use low cost leverage tools

The cost of borrowing money comes from the interest of borrowing money. The interest of financing stock speculation is 8%, the interest of financing real estate speculation is 4.5%, and the interest of financing bitcoin speculation is more than 10%. Obviously, the cost of financing bitcoin plus leverage is high, so you should choose futures instruments without capital cost.

Second, the time limit for applying leverage

The cost of borrowing money is positively related to the time of borrowing. The longer the borrowing time is, the higher the cost is. The concept of self-defence is to ambush and wait patiently. Therefore, using the leverage with interest cost is easy to cause panic and confusion due to the constant increase of interest. In February 2015, I ambushed Lite Coin futures, experienced nearly three months of long positions and finally seized the market price of 55 yuan. If I use the leverage of financing, I will be anxious about raising interest every day and give up double positions too early. Therefore, the concept of coin speculation self-defense is more suitable for the use of futures leverage tools.

Third, reasonable treatment of leverage ratio

Can you really use 20x leverage tools? There is redundancy in nature, and our bodies also have redundancy. When the Bitcoin block reaches 600kb, everyone has been discussing the expansion problem. Because we are in an uncertain world, in order to cope with possible ups and downs, we must spare enough redundancy to deal with accidents. Therefore, the concept of self-defense is to spare 80% of the guarantee money to deal with possible accidents and reasonably ensure that the position is not exposed.

Fourth, use profit to maximize leverage

There are differences in principal and profit. When you have made profits in the right direction, you can take out some of the profits to gamble with the maximum leverage. Put all your eggs in one basket to win excellent profits while absolutely ensuring the safety of the principal.

Speaking of this, I believe you have a certain understanding of what is leveraged trading and how to use leverage tools safely. In general, Xiaobian also reminds investors that no matter whether they choose leverage trading or not, they should have a comprehensive understanding before entering the market. After all, any investment is accompanied by a certain risk, so don't invest blindly.