How Leverage Increases Bitcoin Trading Profits and Losses?
If you have a $10,000 dollars trading account with leverage 5:1 you can buy a maximum of 10 lots of BTCUSD which is equal to $50,000 dollars if current Bitcoin Price is $5,000.000 - 1 Bitcoin contract (1 Bitcoin).
Let us calculate trading profits & losses based on three examples of used leverage, based on a $10,000 Bitcoin trading account:
- 10 lots (5:1)
- 4 lots (2:1)
NB: This is the Leverage used not the Maximum leverage, If an online Bitcoin broker gives you 5:1 leverage, but you only trade 4 lots the used leverage you are using is 2:1, But if you trade 10 contracts then you will use is 5:1 which is equal to Maximum leverage (5:1).
So the example referred in example below is talking of the leverage used based on the volume of the trade that you have opened.
Example 1: (5:1 Leverage or 10 Lots)
If Bitcoin price moves $100 (100,000 points)
If you make a profit of 100,000 points - $100, the profit in dollars is:
For 1 lot 1,000 points equals $ 1
If price of Bitcoin move by $100:
Using 5:1 leverage you will be trading 10 Bitcoin Contracts
1 Lot, 100,000 points = $100
10 lots, 100,000 points = $100*10 = $1,000
$100 move
Total = balance + profit
= 10,000 + 1,000
= $11,000 you have just made 10% profit in your trading account balance.
If you make a loss of 100,000 points - $100, the loss in dollars is:
For 1 lot 1,000 points equals $ 1
If price of Bitcoin move by $100:
Using 5:1 leverage you will be trading 10 Bitcoin Contracts
1 Lot, 100,000 points = $100
10 lots, 100,000 points = $100*10 = $1,000
$100 move
Total = balance - loss
= 10,000 - 1,000
= $1,000 you have just lost 10% profit in your trading account balance.
If Bitcoin price moves $500 (500,000 points)
If you make a profit of 500,000 points - $500, the profit in dollars is:
For 1 lot 1,000 points equals $ 1
If price of Bitcoin move by $500:
Using 5:1 leverage you will be trading 10 Bitcoin Contracts
1 Lot, 500,000 points = $500
10 lots, 500,000 points = $500*10 = $5,000
$500 move
Total = balance + profit
= 10,000 + 5,000
= $15,000 you have just made 50% profit in your trading account balance.
If you make a loss of 500,000 points - $500, the loss in dollars is:
For 1 lot 1,000 points equals $ 1
If price of Bitcoin move by $500:
Using 5:1 leverage you will be trading 10 Bitcoin Contracts
1 Lot, 500,000 points = $500
10 lots, 500,000 points = $500*10 = $5,000
$500 move
Total = balance - loss
= 10,000 - 5,000
= $5,000 you have just lost 50% profit in your trading account balance.
Example 2: (2:1 Leverage or 4 Lots)
If Bitcoin price moves $100 (100,000 points)
If you make a profit of 100,000 points - $100, the profit in dollars is:
For 1 lot 1,000 points equals $ 1
If price of Bitcoin move by $100:
Using 2:1 leverage you will be trading 4 Bitcoin Contracts
1 Lot, 100,000 points = $100
4 lots, 100,000 points = $100*4 = $400
$100 move
Total = balance + profit
= 10,000 + 400
= $10,400 you have just made 4% profit in your trading account balance.
If you make a loss of 100,000 points - $100, the loss in dollars is:
For 1 lot 1,000 points equals $ 1
If price of Bitcoin move by $100:
Using 2:1 leverage you will be trading 4 Bitcoin Contracts
1 Lot, 100,000 points = $100
4 lots, 100,000 points = $100*4 = $400
$100 move
Total = balance - loss
= 10,000 - 400
= $9,600 you have just lost 4% profit in your trading account balance.
If Bitcoin price moves $500 (500,000 points)
If you make a profit of 500,000 points - $500, the profit in dollars is:
For 1 lot 1,000 points equals $ 1
If price of Bitcoin move by $500:
Using 2:1 leverage you will be trading 4 Bitcoin Contracts
1 Lot, 500,000 points = $500
4 lots, 500,000 points = $500*4 = $2,000
$500 move
Total = balance + profit
= 10,000 + 2,000
= $12,000 you have just made 20% profit in your trading account balance.
If you make a loss of 500,000 points - $500, the loss in dollars is:
For 1 lot 1,000 points equals $ 1
If price of Bitcoin move by $500:
Using 5:1 leverage you will be trading 4 Bitcoin Contracts
1 Lot, 500,000 points = $500
10 lots, 500,000 points = $500*4 = $2,000
$500 move
Total = balance - loss
= 10,000 - 2,000
= $8,000 you have just lost 20% profit in your trading account balance.
From the above example you can see that the more leverage you use the greater the profit or loss and the less leverage you use the lesser the profit or losses.
It is therefore better to use less leverage so as to minimize the risks involved in online trading of Bitcoin Cryptocurrency. The higher the leverage used the higher the risk. This is one of the money management leverage rules not to trade with more than 5:1 leverage at any one given time.
In money leverage rules: It is always advisable to stay below 5:1 leverage which is still high, most professional money managers use 2:1 leverage meaning they trade only 4 lots for every $10,000 in their Bitcoin trading account. Therefore, to trade 10 lots these money managers will have $25,000 as their account balance.
As a trader the minimum you should open a Bitcoin trading account with is $10,000 dollars if you will be trading Bitcoin Standard lots. If you will be trading Bitcoin Mini Lots then the minimum you should open a Bitcoin trading account with is $1,000 or $2,000.
