Why Big Leverages Are Uncommon in the Crypto Trading World

Are you someone who has been associated with the online trading and investment industry for a long time? Whether you invest your money in digital currencies of other types of assets, you must be aware of the concept of leverages and how they can help you amplify the profits you earn on your trades. Now, for someone who has been researching online brokers and companies for a long time, they must have noticed that the leverages on other assets are much bigger than the leverages on crypto coins.

Is there a specific reason behind that? Should you be concerned and should you try to know the reason for that? The fact of the matter is that there are several reasons behind this common occurrence and you should definitely pay attention to the details here. Let’s take a look at some possibilities.

Exceptionally Big Movements in the Crypto Market

So, if you are someone who has spent any amount of time investing and trading, you definitely know how leverages work in both directions. Most new traders believe that they should use leverages because they can help them make a lot of profit. What they don’t realize is that leverages can affect them in ending up with losses in just the same way as it can help them make money. The thing about the cryptocurrency market is that it can take some huge swings. Within the same day, there have been 20% upswings and downswings in this market.

This ultimately means that if you end up with a downswing or the movement of the price opposite to your prediction, you could end up with huge losses. To make matters worse, not all online platforms offer you negative balance protection. This means you can end up with negative balance and that money is taken from you as soon as you make another deposit.

Mostly New Traders Trading

You have to admit the fact that most of the traders in the cryptocurrency market are new to trading. These are young people who want to take a shot at stable futures and financial stability. They want to trade and make money but they are not fully aware of the concepts that are a part of this industry. When you invest money in an asset, no matter if it is a crypto asset, you face the risk of losing all the money. When you are new, the chances are much higher for you than they are for someone who has been trading for many years. In other words, there are higher chances that you will lose the trade and end up with a huge loss because of the leverage.

Another issue is that these new traders are not able to calculate the damage they can incur due to leverages on their trades. If 1:100 means $100 from your broker for every single dollar you spend, imagine how much money you will be investing in a trade that requires at least $1000 for you to trade it.

Platforms Want Their Safety Too

When you trade online, especially when you go with cryptocurrencies, you might deal with CFDs. When you trade these contracts, you are not trading the actual asset. You are only trading contract that carries a certain value on it. The company that has introduced cryptocurrencies on its asset index wants some safety for itself as well. Now, it might come to you as a surprise but most brokers are trading against you when you choose a trading platform. In other words, they are investing in buying as well as selling the same asset. By offering enormous leverages, they can get in trouble too.

Final Thoughts

It is important that you understand the nitty-gritty of things before you invest your money in any endeavor. Trading online is great, especially when you go with the newest asset i.e. cryptocurrencies. However, it will pay off at the end for you to research and pick your options after thorough consideration.  

Leave a Reply

Your email address will not be published. Required fields are marked *