What’s the right way to understand leverage and margin as a beginner?

[scalpzone]

Every trading guide talks about leverage and margin, but it still feels confusing when you’re actually setting up a trade.

Some traders say they use 1:30, others go as high as 1:500.

How do you figure out what’s a safe or smart leverage level for your account size?

And how much do you personally risk per trade when you’re using leverage?

[xmrhopium]

Every trading guide talks about leverage and margin, but it still feels confusing when you’re actually setting up a trade.

Some traders say they use 1:30, others go as high as 1:500.

How do you figure out what’s a safe or smart leverage level for your account size?

And how much do you personally risk per trade when you’re using leverage?

Sorry, I don’t do much trading so can’t really help on this. But there’s a board specifically built for trading related discussions click here. That would be better if you move your post into that section for the better advice/suggestions.

And, if you don't know how to move your topic then simply scroll down your/this post, there you will see the options as move topic, click in it then select the "Economy-Trading Discussion" then move it.

You'll get better advice there.

[rat03gopoh]

Every trading guide talks about leverage and margin, but it still feels confusing when you’re actually setting up a trade.

Some traders say they use 1:30, others go as high as 1:500.

As far as I've found, the highest leverage ever offered is 1:125 for BTC/USDT. This is the ratio between margin and profit/loss level.
Let's say you open a $1k position. If:
- Without leverage (1:1), a 2% loss = $20
- With leverage (1:100, meaning $1k*100=$100k), a 1% loss = margin call

How do you figure out what’s a safe or smart leverage level for your account size?

It depends on your confidence in your TA results; there's no universally safe leverage level.
Also, every trader has their own risk management approach to their capital.

[Eternad]

Every trading guide talks about leverage and margin, but it still feels confusing when you’re actually setting up a trade.

Some traders say they use 1:30, others go as high as 1:500.

How do you figure out what’s a safe or smart leverage level for your account size?

And how much do you personally risk per trade when you’re using leverage?

Lol, who suggest that x30 or x500 that’s absurd margin to be considered because it will result to almost liquidation due to the volatility of crypto.

What’s safe is to avoid leverage/margin trading completely and focus on spot trading to avoid liquidation. Crypto market is too volatile that can wipeout any position that has high leverage on it.

The highest leverage I might consider on my trade is just x3 and below. Above it is considered already as high risk.

[retaur]

With leverage (1:100, meaning $1k*100=$100k), a 1% loss = margin call

It's actually worse than that. A lot of price movements will wipe out 100x leverage unless you're extremely lucky.
100x leverage doesn't mean you'll liquidate when the price drops by 1%, it means you'll liquidate once the price has moved anywhere from about 0.3-0.5%. The exchanges are protecting their own margin and call you early so their risks are managed.



I think a lot of the time the leverage that's safe depends on what you're doing. A lot of smart traders with long term positions will open them without leverage and start removing collateral and adding leverage once they're in the clear..

Equally, a lot of profitable traders will open up a low leverage and safer position (around 2-10x) and use that. 10x is already heading towards the risky side, and I think 10x-25x is the point where you're probably more inclined to gamble because price movements occur much more quickly.

[tygeade]

Some traders say they use 1:30, others go as high as 1:500.

How do you figure out what’s a safe or smart leverage level for your account size?

I guess, with an example you may get better understanding on leverage trading and how to be safer while availing leverage.

Let assume, you have capital of some $120k in your trading account and bitcoin is trading around $110k level. For the above capital, without leverage you can trade only one bitcoin.

If you avail, 1:30 leverage, then you can trade (or buy) up to 30 bitcoins or if you avail 1:500 leverage then you can trade up to 500 bitcoin in a single trade. So, basically you are availing margin from the exchange to buy more than what your capital originally let you.

Again let's assume you buy 30 bitcoins at $110k level with leverage of 1:30 and you will be selling bitcoins at $112k level. Now your profit would be 30 * 2k = $60k from your original capital of $120k.

But, you buy 30 bitcoins at $110k but market moves bearish and if touches $108k level, your losses would be same $60k and if market move down further to $107k, your losses would be 30 * 3k = $90k and your original capital is $120k. At this point, some exchanges will liquidate your position to safeguard themselves.

Even if you have the belief about bitcoin prices to be recovering toward $112k level, exchange will not let you wait but will enforce to liquidate for ensuring your total losses would be lesser than your original capital.

So, for safer trade, you must choose lesser leverage so you may wait longer. Like for example, if you avail 1: 10 leverage then for $120k capital, you may wait for prices to recover even market tests 100k level in above example.

So, how much leverage you may need to choose for ensuring safer trade, should be based on your stoploss level and your capital amount.

[Bitcoin_Arena]

I think one of the best place to learn about Leverage and Margin trading as beginner is through practicing using Demo accounts with money that is fake. You will get to learn the different trading strategies and also how leverage/margin works.
For example, crypto markets are so volatile and so the leverage has to be so low or else you easily get liquidated or suffer a huge loss

[goldkingcoiner]

Every trading guide talks about leverage and margin, but it still feels confusing when you’re actually setting up a trade.

Some traders say they use 1:30, others go as high as 1:500.

How do you figure out what’s a safe or smart leverage level for your account size?

And how much do you personally risk per trade when you’re using leverage?

There is no safe or smart level.
Derivatives trading in crypto is basically gambling. Because it is so volatile.

I would recommend not straying outside of spot trading (you can think of it as 1x leveraging with no liquidation point ).

[Bobrox]

Keep away from future trading bro and there are have high risk if not ready yet with your mentality  .

But if you want to learn about future trading start firstly with demo account and use minimum until maximum leverage, maybe you can use MEXC exchange have crazy leverage for several future trading coins up to x500 if usually at Binance exchange maximum around x125 leverage. You must acceptable risk of leverage of future trading your fund liquid or fully loss if wrong position opening, just easily acceptable way when you open short position but bitcoin or altcoin price raise up your fund get liquid.

If your long position opening but coins price drop you will get liquid depend leverage and how much your margin, if have small margin just get close for getting liquid and if won't close with liquid so prepare bigger margin for trading in future.

[tottong]

Every trading guide talks about leverage and margin, but it still feels confusing when you’re actually setting up a trade.

Some traders say they use 1:30, others go as high as 1:500.

High leverage increases the risk of losses for traders, as without proper understanding, people engage in risky trades.
Some exchanges I've used typically offer the highest leverage for Bitcoin and ETH, which aligns with the expectations of some people, whether they expect large profits or significant losses in their trades.
You can measure your leverage ratio based on your trading capital; the greater the leverage, the greater your potential profits or losses.

There's no safe leverage level for futures trading, as everything involves the risk of profit and loss. You can limit these risks by using several methods such as implementing a much more responsible trading method strategy.

[crwth]

A lot of the members have already mentioned the leverage and margin, but I want to delve deeper into the margin maintenance requirements for a specific position. There are calculations to see the minimum margin levels to avoid possible liquidation.

Personally, I trade 1% of my portfolio per trade and use the R:R (risk-to-reward) ratio to set the right position sizing. Position sizing is the most important part of trading with leverage.

[JeffBrad12]

Margin and leverage is simple.
Basically you just borrow money and your margin act as a buffer. Your position will be liquidated when you incur loss and the loss almost reaching the amount of the money you used as a collateral to compensate the offset.

With high leverage only use low margin because the chance for liquidation went up significantly with every leverage.

[jcojci]

If you are a beginner but want to try leverage trading, you should use the lowest leverage to understand how it works. That is less risky for you because you don't use too much money to trade but if you make a profit, the profit amount is not too big. There is no safe or smart leverage level for traders because you need to determine it yourself. You can use high leverage but you should accept the risk. That is not something that people can do. It is better that you learn more about spot trading before you touch leverage trading. You have your time to use leverage trading so be patient.

[tvplus006]

...How do you figure out what’s a safe or smart leverage level for your account size?

For a beginner, any amount of leverage is dangerous, as even using x1 leverage can lead to liquidation. And the higher the leverage, the higher the chance of losing the deposit. In general, the size of a reasonable leverage should be around x3-5, while the order size should not exceed 3% of the total deposit size.

[OcTradism]

For a beginner, any amount of leverage is dangerous, as even using x1 leverage can lead to liquidation. And the higher the leverage, the higher the chance of losing the deposit. In general, the size of a reasonable leverage should be around x3-5, while the order size should not exceed 3% of the total deposit size.

Each exchange has its own formula for liquidation price, gamblers with leverages on cryptocurrency centralized exchanges must learn about this.

If they want something quick, just for quick example, but as said they must dig into formula of each exchange and do their own math, they can use this calculator.
https://leverage.trading/calculators/liquidation-price-calculator/

In trading, not only with leverages, but also in general, let's use Stop Loss Order.
One of the best weapons in trading.

[Alphakilo]

Every trading guide talks about leverage and margin, but it still feels confusing when you’re actually setting up a trade.

Some traders say they use 1:30, others go as high as 1:500.

How do you figure out what’s a safe or smart leverage level for your account size?

And how much do you personally risk per trade when you’re using leverage?

As a beginner in the trading market the right way to understand leverage and margin is to think of them as a double-edged sword that helps to amplify both your gains and losses.

For your first trade as a beginner you should be patient to start with zero or use a low leverage that may be like a 1:1 leverage or a very low leverage level like 2:1 or 5:1 in any instances of trading. The patience you learn in doing this is what makes you a pro at risk management practice.
Also, it would be advised to always define your stop-loss order so as to automatically close your limit and prevent losses before a margin call wiped out your balance in large chunk.

The best advice we always use here that continues to be evergreen will always be to use only the money you can afford to lose, otherwise be a master at using leverage to earn more not suffer a greater loss.

[tvplus006]

Each exchange has its own formula for liquidation price, gamblers with leverages on cryptocurrency centralized exchanges must learn about this...

Yes, indeed, each exchange has its own formula for calculating the liquidation price, but for a trader this difference does not matter, because regardless of the formula, when the margin is compared with the loss on the position, the transaction is forcibly closed.

[Webetcoins]

Leverage = Additional capital to trade.

Leverage trading and margin trading, both are used to denote same type of trading.

There are two types of market for trading: 1) Spot market. 2) Futures market.

Usually in spot market, there won't be any leverage facility so you can assume that you trade with 1:1 leverage.

For futures market, leverage is available mostly as it is a speculative market so high volatility possible. Those 1:30 or 1:500 are based on the broker house, a small leverage you may choose to minimize the risk.

Overall, leverage is a facility that you may avail in margin trading.

There cannot be any smart or safer leverage to avail but based on your stoploss level, you may choose your leverage. Stoploss is more important in futures trading as market must be highly volatile.

[Bitcoin_Arena]

There are two types of market for trading: 1) Spot market. 2) Futures market.

Actually they are more than that if you look at the other markets offered by the crypto exchanges

Usually in spot market, there won't be any leverage facility so you can assume that you trade with 1:1 leverage.

1:1 leverage is deferent from spot market though
1. Has liquidation price unlike spot market
2. Has funding fees unlike spot market
3. You can open a short position, unlike spot market.

[JeffBrad12]

...How do you figure out what’s a safe or smart leverage level for your account size?

For a beginner, any amount of leverage is dangerous, as even using x1 leverage can lead to liquidation. And the higher the leverage, the higher the chance of losing the deposit. In general, the size of a reasonable leverage should be around x3-5, while the order size should not exceed 3% of the total deposit size.

That's very true even 1x have liquidation price in most exchange, meaning it will get liquidated way ahead before reaching 0 which might seems unfair.
2x leverage already put the money on liquidation at 50% drawdown and 50% drawdown in crypto especially altcoin like happens every month. Sometime it's just unfair with these leverages.