@tiberianaca
How do leverage and margin trading work in crypto markets?
Leverage trading allows traders to borrow funds to open larger positions than their initial capital. This amplifies potential profits but also increases risks.
Margin Trading: Traders deposit collateral (margin) to borrow funds and trade larger amounts. Exchanges offer leverage ratios such as 5x, 10x, or even 100x.
Liquidation Risk: If the trade moves against a trader’s position, they risk liquidation, where their collateral is automatically sold to cover losses.
Long vs. Short: With leverage, traders can go long (betting on price increases) or short (betting on price declines).
While leverage trading increases potential rewards, it’s highly risky and requires strong risk management, such as stop-loss orders.
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