Margin is a fraction of the amount a trader requires as security to start a more prominent position. When trading, you can double the amount of the position called leverage. Thus, if a margin trader uses 100 times the leverage, their risk and possible profit can be increased by 100 times. Leverage is a strong tool for traders. You can use it to gain benefits from relatively small price fluctuations, provide larger position sizes for your portfolio, and grow your capital more quickly. Leveraged trading is like margin trading.Margin is a small fraction of the amount a trader needs as security to start a more prominent position. When trading, if a trader uses 100 times the leverage, their risk and possible profit can be increased 100 times. Different Bitcoin exchanges offer different levels of leverage. While some exchanges offer 200x leverage, enabling traders to create positions worth 200x their original deposit, other exchanges only offer 20x, 50x, or 100x leverage. Trades that use 100:1 leverage are referred to as 100x leveraged trades.
When you trade with leverage, you are essentially borrowing money from the market .Let’s say, the price of BTC is $10,000. You want the price to go up, but this time you put in $50 with 100x leverage. Now you are in the market with $50 x 100 = $5000 USD worth of contracts. This is attractive because if the price of BTC goes up, your profits are magnified 10x as well. But the same applies to your losses. Now, if the price of BTC drops from $10,000 to $9,000, in other words, the price drops by 10%, you may be in trouble. Why? Because although you’ve only put $50 dollars into the trade, because you did so with 100x leverage, you are exposed to price movements with $5,000 worth of contracts. A 10% drop for you, means your $5000 has now turned into 5000 x 0.9 = $4,500.In other words, you’ve lost $500 – or, the actual amount you put into the trade. This means you must exit the market.
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