How can the market benefit from falling prices in addition to rising prices? How to deal with multiples of capital? The answer is activity in futures and options. However, in the digital currency market, there is a much simpler way for people who want to experience less risk and not get too caught up in the complexities of futures markets: Leveraged Token.
A leveraged token transaction in an exchange is just like a simple digital currency transaction; The difference is that with leveraged tokens you can taste multiplier profits. Trading a leveraged token also allows traders to benefit from price reductions in addition to taking advantage of rising prices. The other good news about leveraged tokens is that there is no liquidity risk in trading them; What a futures trading nightmare. Of course, do not forget that leveraged tokens are not without risk and you may suffer a lot of damage.
If this explanation sounds complicated and incomprehensible to you, there is no need to worry. In the continuation of this article, we will explain the leaked tokens in a simple way, and at the end of the transaction, you will learn these tokens.
What is a leaked token?
Buying a leveraged token is the same as trading different leveraged digital currencies (trading with multiples of capital).
For example, a Bitcoin leveraged token transaction means that you want to multiply your profit from the Bitcoin transaction.
Also, when you buy a digital currency in the usual way, you can only benefit from price growth; But in the case of leveraged tokens, it is possible to make a profit both in increasing the price (buying long tokens) and reducing the price (buying short tokens).
A very simple example to better understand this issue:
Suppose you are a novice trader and based on the analysis you have done, you guess the price of bitcoin can rise 10%. So as a regular transaction or Spot, you buy bitcoin and if your guess is correct, you make a 10% profit.
Now the same example with the leaked token:
You are a semi-professional trader and based on the analysis you have done, you can guess that the price of bitcoin can rise by 10%. This time you are going to take a little risk and make more profit. So buy a long (green) bitcoin with a leverage bitcoin with 3 levers (BTC Long تو 3 token). If your guess is correct and the price of bitcoin rises by 10%, leverage will come to your aid and you will make a 30% profit instead of 10%. This was the sweet part of the deal; But if your prediction turns out to be the opposite and bitcoin falls 10% instead of growing, you lose 30%.
If you think Bitcoin is falling, you can buy the Bitcoin (red) shortened token to make a profit many times over as the price falls.
Today, it is possible to trade Bitcoin, Ethereum, Cardano and several other large digital currencies in several foreign exchange offices, including Bainance and Cocoin, and it is being added to the list of digital currencies with leverage tokens.
Why a leaked token?
There are generally three ways to trade in the digital currency market:
1. Normal transaction: It is also called Spot Trading, which is the simple buying and selling of digital currencies.
۲. Margin transaction: In margin trading, you borrow money from an exchange multiple of your initial capital, make your intended transaction, and return the exchange money after making a profit. The exchange considers your initial capital as collateral, and if your loss exceeds the amount of capital, all your capital will be withdrawn to compensate for the exchange’s loss, or you will be liquidated.
3. Derivatives TradingDerivatives market includes two markets, futures and options. The description of these two markets does not fit into a few lines; But these markets are for professional traders and its features include the ability of high leverage (up to 125 times the capital).
Until two years ago, only these three types of transactions were done in digital currency exchanges; But the rapid entry of novice traders into the derivatives market (especially the futures market) and the overnight loss of start-up capital due to ongoing liquidations as well as the complexity of futures trading led the FTX exchange to implement the idea of leveraged tokens for the first time.
With the success of this idea, other large exchanges such as Bainance and Cocoin soon implemented this feature.
Dealing with leveraged tokens can be attractive for several reasons; Especially for not-so-professional traders. These reasons are:
You do not get liquid
Liquidation means the loss of all capital, which happens a lot in the futures market and leads many to bankruptcy.
In the futures market, when you use leverage and market fluctuations increase, if the market moves in the direction of your forecast, to the point where “Liquid spotIt is said that your capital can no longer hold the position open and the money changer will withdraw all the initial capital to compensate for the loss (do not forget that the money changer has lent you money!).
But in the case of leveraged tokens, a mechanism called “rebalancing” keeps the levers steady during extreme fluctuations or midnight global time (can vary from exchange office) to prevent 100% loss and not liquidate capital. ; So it is possible to lose, for example, 60% in one day; But all the capital is not lost and you are not liquidated.
Of course, due to the fixed lever and its readjustment during severe fluctuations, trading of leveraged tokens often benefits less than direct trading in the futures market; But for traders who on the one hand are worried about liquidation and on the other hand do not want to lose activity in futures, leveraged tokens are the best option.
Easy trading and multiplier profit
If you are not a professional trader and you are trying to make a profit in the futures market by using the leverage multiplier, in addition to being at risk of being liquidated at any time, you should also be prepared for the complexity of trading.
In fact, the heavy trading environment in the futures market frightens any average trader; Full of obscure buttons and options.
On the other hand, trading leveraged tokens is not a difficult task at all and is done through the same normal trading space. Tokens sit like a separate digital currency in traders’ accounts, and it is easy to gauge their profits and losses.
Dangers and disadvantages
When the lever is in the middle, you are definitely taking a risk and this can not be denied. However, trading leveraged tokens is less risky than trading directly in the futures market; But this type of deal is also not suitable for the novice trader. It is better to have a moderate progress in normal trades before starting trading in these tokens.
In general, if we want to summarize the risks and disadvantages of trading these tokens, we can mention the following two:
Probability of multiplier loss
The more likely you are to make a profit by trading a leveraged token, the more likely you are to make a loss.
Needless to say, in a volatile digital currency market, if you buy a 3-lever token and the market moves 15% against your forecast (bullish or bullish), someone who trades normally loses 15%; But for you, 45% of the value of capital is lost.
Not suitable for long-term investment
When you normally buy and sell digital currencies in an exchange, you are actually buying or selling the digital currency itself; But this is not the case with leveraged tokens.
For example, when you buy an Ethereum leveraged token, you are not actually buying the Ethereum itself, and this token is only valid at your exchange. In fact, you trust a money changer.
In exchange offices, it is not possible to withdraw leveraged tokens into a personal wallet, and only FTX exchange has provided this possibility, in which case, of course, tokens will be recognized only in this exchange.
Also, maintaining a leveraged token includes an additional fee, which varies from exchange to exchange. For example, in Cocoin, a fee of 0.1% is deducted for each purchase and sale of a leveraged token and 0.045% for each day of maintenance of this token. In the short term, these numbers are not large; But in the long run it may be a significant number.
In general, leveraged tokens are designed for speculation and short-term (ultimately several months) trades and may not be a viable option for long-term investment.
Lorigated token transaction
In the first step, your exchange must support leveraged tokens. The first exchange to support these tokens was FTX, and now other exchanges such as Bainance and Cocoin support this type of transaction.
In any exchange office, only the section “is enough to trade these tokens”Leverged Token»Find. For example, in Cocoon, you can access the “Derivatives” menu to access this section.
If you want to learn to trade in cocaine, read the article “Cocaine training”.
Do not forget that the number of currencies for which there is a leveraged token is limited and at least at the present time you can not trade leveraged tokens for unknown and unknown currencies. Cocoins, for example, support more than 10 well-known digital currencies, including Bitcoin, Ethereum, Cardano, Polkadot, Rapil, Dodge Coin, and several other well-known pennies.
In trading, there are two leveraged tokens for each currency:
- Ascending lever token, seen in green.
- Downward leveraged token (shorts) seen in red.
Also, in front of each token with a number and a cross, it is indicated what lever it has.
For example: Bitcoin upward leveraged token with lever 3 in the Cocoin exchange is shown as follows: BTC3L.
- BTC is the symbol of Bitcoin.
- The number 3 indicates the lever. If the price of Bitcoin rises 10%, you will make a 30% profit with this token.
- The letter L is the first word Long, which means that by buying this token, you can predict that the price of Bitcoin will grow.
Therefore, there are no more than two possibilities in trading leveraged tokens:
- Do you expect the price of a digital currency to rise?
- Do you expect the price of a digital currency to fall?
Do you expect the price of a digital currency to rise?
If you anticipate that the price of a digital currency will rise, you should buy the long-range token of that digital currency. For example, if you anticipate that the price of Pulcadat will increase, you can buy the DOT3L token.
Ascending tokens may also be seen in some exchanges with the symbols UP (meaning increase) or BULL (meaning cow = symbol of market growth).
Do you expect the price of a digital currency to fall?
If you anticipate that the price of a digital currency will fall, you should buy a discounted leverage token (shorts) for that digital currency. For example, if you anticipate that the price of Polkadot will decrease, you can buy the DOT3S token.
A bullish token may also be seen in some exchanges with the symbols DOWN or Bear (symbol of the bull).
If you want to trade in futures markets and you are afraid of the risk of liquidation or this type of transaction seems complicated to you, you can also consider a leveraged token trade. In this case, there is both less risk and you can use the leverage (possibility of multiplier profit) in your transactions.
This type of trading, which we have described in this article, has no risk of liquidation and is much simpler than direct trades in futures; But it is not without risks, and as it can double your capital, if you make a mistake in your predictions, you will lose many times over.
Do not forget that buying a leveraged token is by no means a good option for long-term investment and is only used in short-term trading.
What do you think about these tokens? If you have experience in trading these tokens, share them in the comments section of this article.