What is leverage in crypto trading | Concept of leverage in trading

If you have even a little idea about trading, then you must have heard that you can start your crypto trading from as low as $10.
Or
you may have seen people making thousands of dollars from the account as low as $50.

00:00 - Introduction to Leverage
00:35 - What is Leverage in Crypto Trading
00:45 - How Does Leverage Works
02:22 - Understanding Leverage in Crypto trading
03:26 - Why does Broker Provide us with leverage
04:08 - How to Choose proper Leverage in Crypto Trading



So, how is possible?
With such a small account, you cannot possibly buy that amount of cryptos to help you grow your account 10 fold.

Then how is it possible?
Well, leverage is the key to that.

Hey guys, welcome to cryptos monopoly, my name is Daksh, and in this video, I will tell you what is leverage in crypto trading.

Leverage is nothing but the money which a trader borrows from the broker to increase the profit potential.

Let us try to understand this with the help of an example,

Let us consider you funded your trading account with $1000 and your broker provides you no leverage so you have to trade with leverage of 1:1.
This means that with a $1000 account you can buy or sell only $1000 worth of cryptos and cannot borrow any money this time.

Now let's say you bought 1000 units of ADA Cardano at a price of $1 each.
then the price moved to $2 this means that the price moved 100% and you had a profit of $1000.


Now, let us consider you had the leverage of 1:10.
this means that your broker allows you to use 10 times the money which you have in your account.
And your broker lets you control $10000 with your $1000 account.

So, this time you can buy 10000 units of Cardano with the same account of $1000.

Let's consider you now bought 10000 units of ADA at $1 and then the price moved to $2 this means that the price moved by 100% but this time you had a profit of $10000.

Here leverage helped you borrow from the broker and let you buy more ADA than you can afford and so, you were able to profit more.

But leverage is a double-edged sword, it can help you grow your account quickly but at the same time, it can also kill your account.

Like in the same example if the price would have dropped by 10% that is if the price would move to 90 cents you would have lost all your money.
As you would lose 10 cents per unit and that would be $1000 with 10000 units.


So, in simple terms, leverage means borrowing from your broker.

That means if you have a $1000 account and leverage of 1:10 then you can buy/sell 10000 units or control 10000 dollars from that account.

And if you have a $1000 account and leverage is 1:100 then you can buy/sell 100,000 units or control 100 times more money than your account.

Now, there must be one question that might be coming to your mind?
Why does the broker let you borrow money?
Well, there is a really simple answer to that,
your broker earns money when you trade more and therefore your broker wants you to trade more.
Also, the broker keeps your initial deposit aside and as soon as all your trades are in loss and are reaching the initial account balance the broker will not let the account balance go in negative and close your trades.

Leverage is a double-edged sword, which means that it can help you make good profits but it may also make you lose your account.
So, traders need to choose leverage perfectly.
But what is the perfect leverage?

Well, all the professional traders use leverage ranging from 1:10 to 1:50.

But as crypto is a growing market it is very volatile and I would suggest you use no more than 10x leverage.

Just make sure you don't risk more than 3-5% of your account on a single trade.

I hope you liked the video and all your doubts are clear on how to choose proper leverage in crypto trading, why does broker provide us with leverage, professional traders leverage use, What is leverage in crypto trading.

If you did make sure you like share and subscribe and help me grow my little forex community.
I am Daksh, this is cryptos monopoly thank you so much for watching.