Firstly, leveraged digital coins are a risky business. If you are planning to invest in one, here is what you may need to understand.
The crypto evolution has brought multiple tradeable instruments into the financial market. Leveraged crypto assets have attracted investors due to their risk tolerance. These type of tokens allows you to multiply your losses or gains once you execute leveraged deals.
Unfortunately, most individuals purchase leveraged crypto products without understanding the notion behind them. To avoid disappointments, here are some of the things to consider before your buy.
Leveraged assets rebalance
Every leverage crypto asset has its target leverage. It can be 3-times the underlying instrument.
The tokens rebalance automatically to maintain leverage. With successful deals, users reinvest their profits, while the asset sells a portion of its position in case of losses. Typically, these tokens rebalance each day. Moreover, exchanges with leveraged products have functionalities to trigger quicker rebalances during high volatility.
Leveraged tokens are easy to deal with
Margin trading is sophisticated, requiring investor’s active management. On the other part, leveraged cryptocurrency tokens are an easy-to-deal alternative. Investors do not worry about any margin or collateral. The rebalancing translates to low liquidation risks. The asset sells some position in case its value plummets, preventing it from being wiped out.
Most exchanges lack them
Purchasing leveraged digital coins can be challenging, especially for investors in the US. Only selected crypto exchanges offer them, and some of the platforms will not allow you to deposit money. So, how can you go about purchasing leveraged tokens? Most investors use a different crypto platform to deposit funds. After that, they transfer the money to an exchange that offers leveraged assets. You can do it this way:
- Deposit funds to your best crypto exchange, like Coinbase.
- Use the money to purchase the coins to transfer. Most market players prefer stable coins like USDC.
- Transfer your virtual coins to a crypto exchange that offers leveraged coins, like Gate.io or KuCoin.
Other things that you may need to consider are the additional fees. Moreover, leveraged tokens are prone to volatility decay.
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