What is Bitcoin leveraged trading, contract trading, futures trading?

Leveraged trading, contract trading, and futures trading actually describe a trading method.

What is Bitcoin Leverage Trading

Bitcoin leveraged trading, or we can say Bitcoin margin trading. In short, it is leveraged to open a position by borrowing funds from an exchange.

For example, if we open a Bitcoin position with double leverage and Bitcoin increases by 10%, then our position will generate a 20% return on double leverage. Without leverage, the ROI is only 10%. Margin leverage can also reach 25x or even higher. Despite the risks, the same position above will yield a 250% return (instead of 10% without leverage).

How does Bitcoin leveraged trading work?

In most cases, the exchanges offer loans to the traders so they can expand their funds for margin trading. In this way, traders can open positions with high leverage. There is not much risk on the exchange as each position has its liquidation price, which is based on the leverage level.

What is the price of liquidation?

As mentioned above, the cost of a margin position includes the ongoing interest payments on the borrowed currency and the cost of opening a position on an exchange. As the chances of earning more increase, so does the risk of losing more.

Our biggest loss is the amount we invested when we opened the position. This level is called the liquidation price, and this is the price at which the exchange automatically closes the position. So we don't lose any money lent to us, but only our own.

For example, in standard trading, the leverage is 1:1, and the closing price is when the position reaches zero. As leverage increases, the liquidation value will get closer and closer to our buy price. For example, if Bitcoin's value is $1000, we use 2:1 leverage to buy Bitcoin (bull market). The cost of our position is $1000. Also, we borrowed $1000.

The liquidation price for our position will be just over $500 - because at this level we just lost the initial $1000 plus interest and fees. Margin trading can also target the market, so we can also use leverage to go short.

High Leverage Risks

The higher the leverage, the closer you are to the liquidation price. The rule here is to divide 100 by the leverage level to get a percentage until you reach the liquidation price. For example, a positive 1:25 leverage only needs a 4% change (100 divided by 25) to be cleared. In the volatile cryptocurrency market, 4% can be achieved quickly.

Margin trading is now available on most exchanges. The advantages of leveraged trading are obvious and another important benefit comes from security. Cryptocurrency traders should strive to reduce the amount of coins they hold on exchanges. Exchanges are considered a popular target for hackers. Many exchanges, including the major ones, have been hacked in recent years.

Trading on margin allows us to open leveraged positions without providing the required bitcoins; this allows us to hold less money in our exchange accounts.

Reference：

https://www.btcc.com/academy/crypto-basics/what-is-bitcoin-leverage-trading-guide-for-dummies

https://www.btcc.com/academy/crypto-basics/what-is-leverage-in-cryptocurrency-how-can-i-trade-at-100x-leverage