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 leverage level in crypto leverage trading, and in this article, I will break down what I think is the best way to find out which leverage is best for crypto.
As we all know, cryptocurrencies are very volatile, and when leverage is added to the mix, things can get out of hand pretty quickly if you are not careful when selecting your crypto leverage 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:
- What leverage ratio is best for crypto?
- What is leverage ratio in crypto?
- How to choose leverage level in crypto
- Do you need leverage in crypto?
- What is 100x leverage in crypto?
- What is 50x leverage in crypto?
- What is 20x leverage in crypto?
- What is 10x leverage in crypto?
- What is 2x leverage in crypto?
For traders with smaller account sizes, also see our guide: Best leverage 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.
What leverage is best for crypto beginners?
The best leverage for crypto is between 10x up to 99x leverage but this of course relative to your time frame and experience.
Depending if you are a beginner scalper, active day trader, or swing trader you are going to choose a different level of leverage for the cryptocurrency markets.
The general rule of thumb is that beginner crypto traders should use a maximum of 1:10 leverage when starting out due to high market volatility.
This is to minimize the risk while still amplifying potential profits.
In order to make things as clear as possible, I’ve prepared a table that chose the best leverage for crypto traders with different approaches and different experiences:
|Scalper||Day trader||Swing trader|
|0-6 months experience||1:25||1:10||1:8|
|7-12 months experience||1:32||1:22||1:12|
|13-18 months experience||1:42||1:30||1:15|
|1,5-3 years experience||1:55||1:38||1:18|
|3-4 years experience||1:72||1:45||1:21|
|4-5 years experience||1:88||1:55||1:23|
|5+ years experience||1:99||1:70||1:25|
As seen in the table above, the shorter the timeframe the more leverage is allowed in crypto. This is directly correlated with holding periods in the markets and short-term traders benefit more from higher leverage than long-term swing traders.
It is less risky for scalpers to that hold positions for a few seconds to use high leverage in crypto than swing traders that might hold a position for 3 weeks.
Leverage ratios in crypto explained
What does leverage ratio mean in crypto and how does it work?
The answer is easier than you might think and once you learn how to calculate crypto leverage you will find it very easy to trade leveraged crypto markets.
For example, if you have made a deposit of $500 in your crypto leverage trading platform and you want to use a ratio of 10x, your maximum position size would be $5000.
This works by multiplying your initial deposit by the leverage ratio, in this case 10x, to get your maximum buying power.
A 10x leverage ratio of $500 will enable you to open positions worth $500.
Leverage 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 leverage levels affect your position sizes in crypto trading.
|1:5 (5x)||1:25 (25x)||1:55 (55x)||1:125 (125x)|
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.
Most crypto exchanges offer ratios between 1:1 up to 1:125 which is the same as saying 1x up to 125x.
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.
To calculate our ratio, go ahead and use our crypto leverage calculator.
How to choose leverage ratio in crypto
It is important that you consider both the risks of market volatility as well as your potential profits.
After all, leverage is a tool that should be used to increase profits when done right, however, everything should be done in moderation.
When you choose leverage 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 as a beginner in crypto?
Most beginner crypto traders are underfunded, meaning that they lack sufficient capital to make good money from speculating the markets.
Leverage 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 leverage 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 leverage 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 high leverage strategies 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 leverage broker that offers paper trading.
From here, read some of our leverage trader tips to learn the basics. It’s also a good idea to know all about leverage trading commissions before you start to make sure you know the ins and outs of fees before depositing your own money.
What is 100x leverage in crypto?
100x, or 1:100, is the number of times you can multiply your account size when trading on a crypto exchange.
If your crypto wallet is worth $600 and you trade with a 100x multiplier your maximum position size will be $60.000.
You are able to open position sizes that are 100 times bigger than normally while risking only the capital you have initially deposited.
That’s correct, it might sound crazy but you are able to size up pretty big with a multiplier of 100x.
What is 50x leverage in crypto?
What does 50x leverage mean in crypto?
When using a 50x, or 1:50 leverage ratio in crypto you are able to multiply your account size, your potential profits, your commissions, and your losses by 50 times.
Everything you do is amplified 50 times and this is what traders are looking for when they seek out leveraged crypto platforms.
Let’s say that you open a trade in Ethereum worth $400 and you make a profit of 11%, this would result in a total profit of $44.
However, if you use a 50x multiplier, that profit will grow 50 times and the total profit would be $2200.
That’s correct, but keep in mind that your downside increases as well and your losses can quickly ramp up.
What is 20x leverage in crypto?
What does 20x leverage mean in crypto?
A 20x, or 1:20 leverage level 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 leverage you can now trade lot sizes worth $4000-$8000.
The extra money is provided by your leverage 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?
What does 10x leverage mean 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 leverage 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 your get to keep $3000.
What is 2x leverage in crypto?
What does 2x leverage mean in crypto?
A 2x multiplier in crypto trading means that you can double your current account balance.
This means that you can trade with a position size that is twice as big as your net worth.
For example, if you own $1000 in your wallet and apply a 2x multiplier, your new maximum position size will be $2000.
The same goes if you only have $200, $400, or $600, they are all doubled with 2x leverage.
Keep in mind that while your profits increase, the fees and losses increase accordingly.
In this article, I’ve examined what the best leverage is for crypto beginners and how you should think when choosing your own leverage ratio. Depending on if you are a complete beginner who likes to swing trade or if you are an experienced scalper, there are some different standards to follow.
Some topics discussed in this guide are:
- What is a leverage ratios
- Which is the best leverage for crypto
- How to choose leverage
- If leverage is needed for beginners
- Different ratios explained (100x, 50x, 20x, 10x, and 2x)
To make more money from your crypto leverage is a good tool to have when you lack proper funding. Most professional traders would not make it without their account sizes which are worth well over $250.000.
For a beginner, leverage is the way to trade bigger while still only risking a fraction of the position size. Using leverage for long-term investing is not always recommended but when it comes to short-term trading you can benefit greatly to have more capital at your disposal.
The standard ratio on popular crypto exchanges that offer leverage is from 1:1 to 1:125.
As you start out, it is always wise to stay on the safe side to learn how leveraged markets work before increasing your ratio. A ratio of 1:10 should be your maximum if you are new to cryptocurrency trading.
At a moderate level, leverage 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 out small before increasing your buying power.