Leverage refers to the ability to use something small to control something big. In trading it means you can have a small amount of capital in your account controlling a larger amount in the market.

The apparent advantage of using leverage is that you can make a considerable amount of money with only a limited amount of capital. The problem is that you can also lose a considerable amount of money trading with leverage. It all depends on how wisely you use it and how conservative your risk management is.

Leverage is usually given in a fixed amount that can vary with different depending on the exchange you are using. Each leverage exchange gives out leverage based on their rules and regulations. The amounts can vary from 2:1 through 100:1.

  • 10:1: Ten-to-one leverage means that for every $1 you have in your account, you can place a trade worth up to $10. As an example, if you deposited $500, you would be able to trade amounts up to $5,000 on the market. Thus enabling you to receive the returns $5,000 makes on the market as opposed to $500. Consequently, when trading on leverage you will lose money just as fast you make it. Since you are using the equivalent of $5,000 when your trade amount is $500 on 10x leverage, you will lose $500 on a ten percent move if the asset's price trends against you (10% of $5000 = $500). If this occurs your entire $500 balance will be liquidated and you will be left with $0.

  • 100:1: One-hundred-to-one leverage means that for every $1 you have in your account, you can place a trade worth up to $100. As an example, if you deposited $500, you would be able to trade amounts up to $50,000 on the market. Thus enabling you to receive the returns $50,000 makes on the market as opposed to $500.  Consequently, when trading on leverage you will lose money just as fast you make it. Since you are using the equivalent of $50,000 when your trade amount is $500 on 100x leverage, you will lose $500 on a one percent move if the asset's price trends against you (1% of $50,000 = $500). If this occurs your entire $500 balance will be liquidated and you will be left with $0.

It is important to understand how leverage works before using it in your trading tool set. Fortunately, there are methods of risk management you can practice in order to mitigate the volatility of your trades. One being, use lower amounts of leverage. The second would be to establish an equity per trade amount that coincides with your risk tolerance.

Equity to trade refers to the percentage of your trading balance on an exchange that will be used when a connected bot enters a new position. For example, if you have a total trading balance of 1 Bitcoin and your equity to trade is set to 50%, then when your selected bot enters a new position the position size of the trade will be 0.5 Bitcoin.

By utilizing the equity to trade feature you are managing your risk affectively by not allowing your entire balance to be traded by the bot on any given trade, thus limiting your downside.

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