What Does 100x Leverage Mean in Crypto?

The cryptocurrency markets are notorious for their volatility – because of the rapid price movements displayed by cryptocurrencies, fortunes can be made or lost within minutes or even seconds. 

For traders who have a very high risk appetite, however, spot crypto markets might not provide enough volatility. In such cases, traders use leverage to amplify their trading results.

What does 100x leverage mean in crypto?

In crypto trading, the term “100x leverage” is most commonly used in reference to futures trading. When someone is trading with 100x leverage, they are trading with a position that’s 100 times larger than the capital they committed to the trade.

For example, if you provide $1,000 in capital and enter a trade with 100x leverage, your position would be worth $100,000.

Trade Crypto with Leverage on Binance

Unless you are a highly sophisticated trader, using 100x leverage in the crypto market is more similar to gambling than trading. Trading crypto with high leverage is extremely risky and you can lose your entire investment within seconds. 

The reason why leveraged trading is especially risky in the crypto market is because crypto assets tend to display a very high level of price volatility. Due to the rapid price moves in the crypto markets, losses can pile up extremely quickly when using leverage.

Leverage trading in crypto explained

In trading, using leverage means entering a position that’s larger than the capital committed to the position. 

For example, if we commit $100 to enter a position worth $1,000, we are using 10x leverage (1000 / 100 = 10).

Naturally, you might ask how is it possible to enter a position worth $1,000 if we only commit $100. The answer is that there’s no magic at play here – leverage trading works through borrowing funds. 

The initial capital you provide ($100 in our example) to borrow funds and enter a leveraged position is called “margin”. The terms “leveraged trading” and “margin trading” are often used interchangeably.

When you enter a leveraged trade, both your gains and losses will be amplified equally. You will also have a liquidation price – if the price of the crypto you are trading reaches this price, you will lose all the margin you committed to the position and your position will be automatically closed.

The higher the leverage you’re trading with, the more risk you are taking on. If you are trading with 100x leverage, your position will be liquidated if the market moves just 1% in the opposite direction of your trade.

High leverage trading is more commonly used in forex trading, especially when it comes to major currency pairs with low volatility. By using high leverage, traders can make significant profits even if the price movements are relatively small in absolute terms. There are many forex brokers with high leverage catering to traders looking to amplify their trading results.

Leverage trading example

Now, let’s take a look at an example of trading cryptocurrency with leverage. For the sake of simplicity, we will not be accounting for trading and funding fees.

Let’s say that Ethereum is trading at $4,000 and we want to go long on ETH. We use 10x leverage, which allows us to commit $100 and get access to $1,000 in capital. This allows us to enter a 0.25 ETH position (1000 / 4000 = 0.25).

After we enter our trade, the price of Ethereum increases by 10%, and is now $4,400. We are happy with the profits and sell our 0.25 ETH position for $1,100. After we return the $900 we borrowed, we’re left with $200. Since our initial margin was $100, we made a 2x profit with only a 10% move in the price of ETH! Amazing, isn’t it?

Well, not so fast – leveraged trading is a double-edged sword, and it’s important to understand the risks as well as the benefits. Now, let’s see what happens if the market moves in the opposite direction of our trade.

Let’s say the price of Ethereum decreases by 10% and hits $3,600 after we enter the trade. This means that our 0.25 ETH position is now only worth $900. 

Remember, we had to borrow $900 to be able to access $1,000 in capital by only providing $100 in margin. Since we must return the loan, the exchange will automatically close our position so that it can guarantee that the $900 we borrowed can be returned. 

As you can see, a downward move of just 10% wiped out the entire margin we committed, resulting in a 100% loss on the trade. If we bought ETH on the spot market instead, we would only be down 10%.

Best crypto leverage trading exchanges

Leverage trading is very popular among crypto traders, so it’s no surprise that a large number of exchanges is offering this service. However, not all exchanges are created equal – here are the best crypto futures trading platforms to use if you’re interested in trading crypto with (high) leverage.

Due to its high risk, some countries place strict regulations on leveraged trading. In some cases, leveraged trading is only available to accredited investors. Therefore, some exchanges might not give you the option of trading with leverage depending on which jurisdiction you live in.

Isolated margin vs. cross margin

Advanced crypto exchanges such as Binance typically offer two margin trading modes to users – isolated margin and cross margin. 

In isolated margin mode, the margin is “isolated” to a specific trading pair. When trading in isolated margin mode, your maximum loss for any particular trade is limited to the initial investment you made into the trade (as well as any margin you added manually later on).

Meanwhile, losses can be greater than your initial investment into the position if you are using cross margin. This is because all of the assets in your margin account will be used to prevent a position from being liquidated.

Cross margin is more convenient and provides more flexibility, but the worst-case scenario of liquidation will be more impactful than if you were using isolated leverage.

The bottom line

Trading cryptocurrency with 100x leverage is extremely risky, and can quickly lead to significant losses. Higher leverage ratios bring higher potential for profits, but also bring increased risk. We recommend that you exercise a lot of caution when utilizing leverage in crypto trading and use stop loss orders to mitigate losses.

If you want to learn more about advanced methods of trading crypto, make sure to check out our list of the best crypto contract platforms.