Since its foundation, bitcoin has been a unique phenomenon that is challenging the traditional monetary system and global financial trading. The bitcoin hype in 2017 was major progress for the most used digital coin, and although bitcoin was struggling through 2018, the coin has made an impressive comeback in 2019.
There are so many speculations revolving around bitcoin – While some argue for a temporary bubble that will not last in the future, others claim that bitcoin is here to stay and might even hit an unrealistic price of 100,000 per unit.
Nevertheless, there is more than meets the eye when it comes to bitcoin. We can not predict the future and as of this moment, bitcoin is a tradable asset which can be used as a payment method, safe heaven, and price speculation.
One of the advantages of bitcoin is the ability to leverage your transaction, which simply gives you the option to trade larger amounts with a smaller capital. Trading bitcoin using leverage can be done through one of the crypto exchanges or a CFD broker.
What is Bitcoin leverage and how does it work?
The simple explanation of leverage trading, also know as margin trading, is the ability to open a financial transaction with a larger amount of capital than you actually own. Basically, you borrow a certain amount of money from the exchange or your broker in order to get a larger amount of capital. However, there’s a catch – using leverage can increase your risk and the potential to lose your investment in the same way it increases your possibility to make a large profit. It’s can be used to your benefit, as long as you leverage your position in a smart way.
For example, if you invest 1000 USD without leveraging your position, you can get 0.09871688BTC if Bitcoin price is at $10129.45. If Bitcoin goes to $15,000, you could earn $480.75 which is an increase of 48.75%. It’s not bad and with the high volatility of bitcoin, this scenario is more than possible.
If you decide to buy (or short) bitcoin using a leverage ratio of 1:50, with the same amount of investment of $1000, then your capital is equivalent to $50,000. Therefore, you can own 4.93584390BTC and if the price rises to $15,000, then you can earn $24,037.66! The catch? if bitcoin’s price falls to 9927, you will lose your initial investment of $1000.
So, using leverage can be extremely tempting, however, some rules you should have before you start your first transaction. First, you’d better have a very large cash cushion. In the above example, if you had a balance in your account of $10,000, then your stop-loss is at 8100.
Secondly, match the amount of your investment to a rational leverage ratio. If you would take a leverage ratio of 1:20, 1:10, you can lower your risk. A high leverage ratio can be useful for day traders that decide to close the position at the end of the trading day.
Trading Bitcoin with Leverage via a crypto exchange
The first option is to trade bitcoin through one of the crypto exchanges. We recommend Binance or Bitmex. Binance is the largest crypto exchange in the world and is much more easy to use (relatively) than other crypto exchanges. Binance also provides a wider range of crypto pairs and a leverage ratio of 1:20 for bitcoin trading. Click here to get a 5% bonus on your deposit on Binance.
Another crypto exchange that is offering bitcoin trading with leverage is Bitmex, which provides a higher leverage ratio than Binance of 1:100.
Trading Bitcoin using leverage via a CFD broker
Another way to trade bitcoin using leverage is to open an account with a CFD broker. If you are not familiar with CFD’s we recommend to read this guide about CFDs. There are many brokers that provide bitcoin trading with leverage. We recommend AvaTrade, which is a reputable and regulated broker, offering a leverage ratio of up to 1:20 for bitcoin trading.
Note that residents in the United States cannot trade CFDs so the only option to buy bitcoin with leverage is through a crypto exchange or bitcoin futures.
What’s the difference between buying bitcoin through a crypto exchange and a CFD broker?
When you buy bitcoin through one of the crypto exchange like Binance, you physically purchase a digital coin, which can be used as a payment method for goods and services. When you buy bitcoin through a CFD broker like AvaTrade, you purchase a contract that allows you to speculate the price of the digital coin, but not to physically hold and use bitcoin.
Best brokers and exchanges to trade bitcoin with leverage
There are many options to buy bitcoin using leverage through crypto exchanges and CFD brokers. A high leverage ratio should not be the only consideration but also a secure and safe exchange/broker, and low trading fees. Those include:
5 Best crypto exchanges to trade bitcoin with leverage:
5 Best CFD brokers to trade bitcoin with leverage:
|AvaTrade||Up to 1:20|
|Pepperstone||Up to 1:5|
|IG||Up to 1:20|
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money