How To Choose The Best Leverage For Crypto

Explaining what leverage ratio is best for crypto trading, in general, is like telling someone which size of clothes is the best. This is impossible because people have different bodies which call for different sizes. The same goes for crypto traders, we all have different ways of trading the market and different risk appetites.

However, there are some general guidelines on how to choose the amount of borrowed money level in crypto leverage trading, and in this article, I will break down what I think you can choose when selecting ratios.

As we all know, cryptocurrencies are very volatile, and when credit is added to the mix, things can get out of hand pretty quickly if you are not careful when selecting your ratio.

To avoid overleveraging your coin and losing your stake there are a couple of handy tips that will help you increase your output and profit while complying with solid risk management strategies.

You will learn:

For traders with smaller account sizes, I suggest that you read more on how to choose ratio for a small account. This guide will focus on two parts, how to maximize profits through leveraging cryptocurrencies, and how to minimize your losses.

In a different guide, we have covered how leverage affects crypto trading losses which I recommend that you read as well. Remember to always implement a safe strategy for crypto due to the high volatility.

What leverage is best for crypto?

The most optimal leverage for crypto is between 10x up to 99x but this of course relative to your time frame and experience.

Depending if you are a scalper, active day trader, or swing trader you are going to choose a different level of margin for the cryptocurrency markets.

The general rule of thumb is that crypto traders should use a maximum of 1:10 when starting due to high market volatility.

This is to minimize the risk while still amplifying potential profits.

To make things as clear as possible, I’ve prepared a table that shows good levels of margin for crypto traders with different approaches and different experiences:

ScalperDay traderSwing trader
0-6 months experience1:251:101:8
7-12 months experience1:321:221:12
13-18 months experience1:421:301:15
1,5-3 years experience1:551:381:18
3-4 years experience1:721:451:21
4-5 years experience1:881:551:23
5+ years experience1:991:701:25

As seen in the table above, the shorter the timeframe the more borrowed funds are allowed in crypto. This is directly correlated with holding periods in the markets and short-term traders benefit more from higher margin than long-term swing traders.

It is less risky for scalpers to hold positions for a few seconds in crypto than swing traders who might hold a position for 3 weeks.

Leverage ratios in crypto explained

What does leverage ratio mean in crypto and how does it work?

When trading with leverage, the ratio tells you how many times your initial deposit, or your margin collateral, will be multiplied.

For example, if you want to trade altcoins with increased purchasing power and have made a deposit of $500, you want to use a ratio of 10x, your maximum position size would be $5000.

crypto leverage ratio explained

This works by multiplying your initial deposit by the ratio, in this case, 10x, to get your maximum buying power.

A 10x ratio of $500 will enable you to open positions worth $500.

The ratios are the building blocks of leveraged crypto trading and without them, you would not be able to choose how much capital you want to use.

In the table below I explained how different levels affect your position sizes in crypto trading.

1:5 (5x)1:25 (25x)1:55 (55x)1:125 (125x)
$500$2500$12.500$27.500$62.500
$1200$6000$30.000$66.000$150.000
$3000$15.000$75.000$165.000$375.000
$7500$37.500$187.500$412.500$937.500

As you increase the ratio your maximum position increases accordingly and as seen in the table above it is possible to open a position size worth $62.500 with only $500 at a ratio of 1:125.

Usually, the best leverage crypto exchange usa offers ratios between 1:1 to 1:125.

When deciding on your favorite ratio you need to consider both the risk factor and the potential for profits.

A higher ratio always increases both the risk and the potential reward of each position.

How to choose leverage ratio in crypto

You must consider both the risks of market volatility as well as your potential profits.

After all, margin is a tool that should be used to increase profits when done right, however, everything should be done in moderation.

When you choose a ratio for crypto you need to consider two things:

  • Your time frame
  • The volatility of the coin

Once you know your time frame you can use the table above.

The volatility of the coin can easily be measured by using the ATR indicator.

ATR stands for Average True Range.

This indicator will tell you how frequently your coin fluctuates up and down in price and also how much.

This information is essential when choosing the perfect level of leverage for crypto trading since it will tell you how volatile your coin is.

Once you have learned how it works you can apply it to your charting software.

Apply the indicator and set the chart to the 1D time frame.

The 1-day time frame will show you the larger swings which will tell you on average how much the price fluctuates.

The general rule is:

  • High ATR reading = Choose a ratio between 1:5 – 1:25
  • Medium ATR reading = Choose a ratio between 1:10 – 1:45
  • Low ATR reading = Choose a ratio between 1:20 – 1:75

If you want more safety while trading try to lower the ratio another point or two to avoid leverage trading liquidation.

Do you need leverage in crypto?

Most crypto traders are underfunded, meaning that they lack sufficient capital to make good money from speculating the markets.

Borrowed capital is a great tool that can boost your earnings significantly, even in very short time frames.

Scalpers and day traders benefit the most from high margin trading since they make a living by entering and exiting cryptocurrencies during very short time frames.

Swing traders with longer holding times of more than a day can also benefit from borrowed money but at much lower ratios.

The big drawback of using credit is of course the potential for larger losses that might incur if you are not careful.

This is a common risk and especially for novice traders, it can be hard to control the already volatile crypto markets with added buying power.

As long as you can control the risk with strategies for leverage traders and proper risk management tools it’s safe to say that leverage has a lot to offer any trader.

The best way to try it out to see if it works for you is to start with a demo account on a broker that offers paper trading.

It’s also a good idea to know all about margin trading commissions before you start to make sure you know the ins and outs of fees before depositing your own money.

Related: Try our crypto position size calculator to find out your perfect position size

What is 20x leverage in crypto?

A 20x or 1:20 level of borrowed capital in crypto trading means that your initial investment can be multiplied 20 times.

If you deposit $600 in your wallet and are used to trading lot sizes of $200-$400, with 20x credit you can now trade lot sizes worth $4000-$8000.

The extra money is provided by your crypto exchange.

All profits and losses will be calculated on the new position size whether it’s $4000 or $8000.

If you make a 5% profit on $8000 you get to keep all the winnings, which would mount up to $400.

What is 10x leverage in crypto?

It means that you can increase your overall purchasing power by 10 times.

For example, if you own $2000 in your cryptocurrency wallet and want to trade Bitcoin with 10x more money you simply choose BTC in your trading interface and enter the market with $20.000.

All profits or losses that you make are calculated on the $20.000 position size and depending if you win or lose, the money is deducted or deposited in your margin balance.

If you make a 15% profit on the $20.000 you get to keep $3000.

Final words

In this article, I’ve examined what the most optimal multiplier is for crypto traders and how you should think when choosing your margin ratio. Depending on whether you are a complete newbie who likes to swing trade or if you are an experienced scalper, there are some different standards to follow.

To make more money from your crypto trading, adding credit is a good tool to have when you lack proper funding, however, make sure you look over the increased risk with this syle of investing.

Most professional traders would not make it without their account sizes which are worth well over $250.000.

Using leverage for long-term investing is not always recommended but when it comes to short-term trading you can benefit greatly from having more capital at your disposal.

FAQ

How much leverage can you use on crypto?

The standard ratio on popular crypto exchanges that offer multiplier is from 1:1 to 1:125.

What leverage should a crypto traders use?

As you start, it is always wise to stay on the safe side to learn how margin-traded markets work before increasing your ratio. A ratio of 1:10 should be your maximum if you are new to cryptocurrency trading.

Is leverage in crypto good?

At a moderate level, margin can increase your profits up to 10 times and even 50 times when you are right. However, your potential losses and fees will increase as well. It’s always good to start small before increasing your buying power.

Anton Palovaara
Anton Palovaara

Anton Palovaara is an expert leverage trader with decades of experience trading stocks and forex through proprietary software. After shifting over to leveraged crypto trading in derivatives and futures contracts he has become an influential figure in the cryptocurrency industry. Anton's trading strategies have helped numerous investors achieve significant returns on their crypto investments. With a keen eye for market trends and a deep understanding of technical analysis, Anton has developed a reputation as a shrewd trader who is not afraid to take calculated risks. He has a track record of predicting market movements accurately, and his insights are highly sought after by crypto traders and investors alike.

Articles: 68

Leave a Reply

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