What does it mean by “trade with leverage”?
Leverage is normally presented as a ratio, for example; 1:3 or 1:4 this means that if you deposit $1 in your trading account, you can open a trade with $3 or $4. Now, with leverage of 1:4, if you open a position in bitcoin with $ 20,000, then only one-fourth ($5000) of that particular amount would be your own money, the remaining $ 15,000 would be considered as the borrowed amount. This will enable a trader to invest a small amount of money in order to get a large position in the market.
Now, let’s turn things the other way around to understand the “trade with leverage” with more clarity. If you deposit $ 5000 into your account, you would be able to open up your account with $ 20,000. If this trade generates a 10% (2000) return, your account balance will actually increase by 28.57% (to$ 7000).
If the trade from the result was10% loss, then you would have actually lost 8.57% of your account balance. This is why it becomes a bit riskier to invest in bitcoin with leverage, that’s why it is recommended to in a short term with strict money management applied.
It is safe to trade bitcoin without leverage, but the opportunity to make a massive return with less in the pocket would be gone. It is all about, to what extent to you willing to take a risk. If you are a composed trader and have control over your trading habits, then trading with leverage might not suit you, but if you are an impatient trader and always looking forward to doubling your investment, then trading with leverage is not a good idea.