How To Make Money With High Leverage Trades In Crypto

Its likely the many times you’ve heard people talk about leverage, they dissed it as a bad idea and a sure way to lose money. This is a different perspective about leverage, going back in time to relook how leverage came about and became a big thing in crypto, the impact it has had in a short time and examples of real people who have mastered the art of leverage trading

There was a time trading crypto was straight forward.

You only needed to find a guy willing to sell his Bitcoin or Alts and then you would send the coins you just purchased to an exchange.

In fact this was the only way you could get your funds into Binance when the exchange launched in 2017.

Trading was simply straightforward but with limited options.

For traders with small account balances, this was a huge opportunity cost which caused much psychological pain during price rallies.

Making just $10 in a single trade was hell difficult.

If you had like 50 bucks, this would buy you about 0.005BTC when one BTC was worth $10000 in 2017. With your few sats, you stood no chance compared to a guy holding one full BTC. Massive price pumps of more than $5000 would hardly earn you enough lunch money. Most traders were literally not having any fun staying poor during a bull market.

It simply made no sense and people questioned the practicality of investing in crypto. Here we are talking about retail traders who are the majority in crypto.

But soon enough crypto exchanges created more products. One of those products is leverage and it is bundled in the margin and perpetual futures markets.

Note: I’m referring to the leverage offered in the perpetual futures.

With the introduction of perpetual futures, not only could you make money during price pumps, but also during dumps.

And leverage was an instant game changer because it meant 50 bucks could actually make you life changing money. What’s the catch? As fast as you could make hell lots of money, you could lose all of it in a instant.

Given that leverage created what is now a very competitive and lucrative market inside crypto, exchanges went further and created massive latitude allowing traders to borrow as high as x125. So, with 50 bucks you could borrow as much as $6250.

So, if you had like $50 in your trading account during the infamous Bitcoin dump of March 2020, you could have used leverage to buy 2 Bitcoins (perp contracts) when BTC wick touched lows of $3500.

Hold up! That’s in theory. Things work rather differently in the real world.

In the real world, if you entered that trade, you possibly could have lost your $50 through liquidation.

More than a million trading accounts got wiped out in the biggest ever liquidation event on April 19, 2021. Another 800,000 plus accounts also got wiped out on May 19. Both events, a month apart, wiped about $20 billion off the market.

Extremely high leverage provides very little margin of error and during a black swan event such as March 5, 2020, markets become highly volatile meaning prices move in different directions within seconds, giving you little time to react.

Its actually known as catching a falling knife because markets be presenting you with kind of a real life scenario of a knife falling off the table and you trying to save the day by catching it mid air. Very few people can do such a stunt because it takes practice in real life.

Catching falling knives or riding the massive red candles in crypto markets also takes practice and its the reason why only a few traders can do it successfully.

They actually go extra and turn the leverage meter all the way up. And they win.

How to trade with high leverage

Trading with leverage is an art itself. Trading with high leverage, even x50 requires balls of steel.

We are talking about a lot of practice, commitment and patience. And switching off your emotions. If you are to catch a falling knife you have to practice with a knife and its true in crypto. You have to start by riding those red candles as they happen.

How to go about it is simple. You could start with a testnet trading account to avoid using real funds and as you sharpen your craft, you have to transition to a real trading account with real money. You have to practice how to save your money because high leverage means massive risk. And its also the only way you will manage to put your emotions in check.

Another thing you must learn is risk management and position sizing. Every successful high leverage trader you’ll find is great on risk management and keeping risk low through position sizing.

Always remember the catch. High leverage could get your account liquidated fast. Its a game you are playing with your liquidity provider and you have to win, most of the time.

Traders who have perfected their craft say you have to get to a point where losing or winning trades makes you feel nothing. Yes, you have to feel nothing no matter the outcome.

If you practice high leverage trading for a month and continue feeling emotions, this is a sign that you are in the wrong place. Either tune down your leverage meter or buy spot and hodl.

I know one trader who has consistently used high leverage (turning the meter to 100) with positive outcomes. This is what he has to say.

One more important thing to note before you embark on trading with high leverage is looking for ways to increase your efficiency and turn around time.

This basically means you must invest in powerful hardware with extended battery life to run you trading engine without any slowdowns or freezes. In other words, a slow pc or power outage will cost you good trading opportunities.

Lastly you have to develop a strategy.

For instance, some successful traders employ a sub account strategy with high leverage. This is a genius way to manage risk and emotions. One thing, a sub account will only be allocated only the amount you can afford to lose. This way you can trade momentum moves, with say $30 or $50 at x50–100x leverage and take profit or loss without attachments.

Another example is using a portion of previous profits or what I call “giving some gains back”. Here you transfer some amount to a sub account and only trade breakout patterns with high leverage.

Conclusion

Leverage trading is a double edged sword. Its both profitable and risky. Its simply the reason why crypto exchanges introduced it. Big liquidation events means huge returns for exchanges in trading fees. For traders, money goes up in smoke.

But remember, leverage has played a huge part in making crypto trading a reasonable and practical endeavor for enthusiastic retail traders without big bucks to spend.

Leverage may not be your cup of tea, but there is someone who can now afford to pay rent because of it. All they needed was to become extra smart.

Just like in the physical world, leveraged businesses have an edge over their unleveraged counterparts which means that such entities gain more latitude in the market providing more opportunities for growth, but with added risk.

Are you new to leverage trading and struggling to wrap your head around this thingy? Futures market is a broad subject with many things to learn. What I have written here is hardly enough but just an angle to broaden the scope of your understanding. You obviously need to do more research before you decide if leverage is really what you are looking for as a trader. You can always follow me for more articles about crypto and feel free to reply with questions.

Cheers!

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