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Gate.io Blog How to set up proper leverage for Perpetual Contract?
AMA 101

How to set up proper leverage for Perpetual Contract?

22 November 18:34


Q: Today's let's study some details about how to set up proper leverage for Perpetual Contract.


A: It is a very useful topic.

1.Let's study the basic definition of Leverage.

Leverage is the use of borrowed money to invest in trading.

The concept of leverage is very common. By borrowing money from the exchange, investors can trade larger positions in a currency. As a result, leverage magnifies the returns from favorable movements.

2.Key takeaways

Leverage, which is the use of borrowed money to invest, is very common in trading.

By borrowing money from a broker, investors can trade larger positions in a currency.

However, leverage is a double-edged sword, meaning it can also magnify losses.

Many brokers require a percentage of a trade to be held in cash as collateral, and that requirement can be higher for certain currencies.

Q: What is margin?


A:

A margin is the relative amount needed to carry out a leveraged deal, taking into account spreads, leveraging, and currency conversions. Let’s say you want to invest $1,000 at a leverage ratio of 1:10. The margin will be 10%, meaning you will need to invest $100.


Q: How does leverage trading work?


A:

To start trading on leverage, it is advisable that a trader starts with a leverage that is lower than their maximum leverage allowance. This enables traders to keep their positions open for the full size, even if they are experiencing negative returns.

Q: Let's take a look at the risks of leverage.


A:

The most important thing to understand when talking about leverage is the risk involved. Risk is inherent to any type of trading, however, leverage can cause both magnified profits and losses.

The leverage ratio should be determined in advance of trading. It is very tempting to trade in a larger size than what was originally determined if you have the confidence of winning trades.

Two factors could be taken into consideration when determining what amount of leverage to apply to a portfolio:

1) How much risk to take per trade and how much risk to take per day. Examining this via percentages makes things easier. This involves deciding the maximum amount that you are willing to lose.


2) A trader should also determine how many trades they want to place per day. This could be a set number or a maximum number.


Q: Let's take a look at risk management.


A:

It is important for all traders to bear in mind the risks involved in leveraged trading. Many traders see their margin wiped out incredibly quickly because of a leverage that is too high.

Novice traders should be especially careful when practising margin trading. It is best to use a lower leverage. A lower leverage means that traders are less likely to wipe out all of their capital if they make mistakes.

A popular risk-management tool to be considered when trading with leverage is a stop loss. By implementing a stop-loss order to your position, you can limit your losses.

Guaranteed stop losses work exactly in the same way as basic stop orders, although investors can choose to pay a small fee to guarantee the closing of a trade at the exact price specified.

Try to balance between Risk and Profit.


Q: What is leverage ratio?


A:

Leverage ratio is a measurement of your trade’s total exposure compared to its margin requirement. Your leverage ratio will vary, depending on the market you are trading, who you are trading it with, and the size of your position.

Using the example from earlier, a 10% margin would provide the same exposure as a $1000 investment with just $100 margin. This gives a leverage ratio of 10:1.

Please check the below chart:

Categories

Unleveraged trading

Leveraged trading


1:01

20:01

2:01

100:1

200:1

Investment

$1,000

$1,000

$1,000

$1,000

$1,000

Exposure

$1,000

$20,000

$50,000

$100,000

$200,000




Q: Here with some tips of leverage on Gate.io


A:

1.Cross and Isolated

Cross, it is to maximize the margin to use up all your account. Though, you may only invest in 30%, once the fluctuation breaks out the limits, Cross function will allow you to maximize the margin by all the money in your account.

Isolated, it is to limit the margin only base on how much you invest, until it's liquidated.

2.Leverage X

Maximum leverage on Gate.io is 100X.

Different coins with different max leverages.

3.As novice, using 10-20X is the best option. It is all up to how much you can invest and how much lose you can afford.

Q: Let's go to question session.


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