Video 3/4 - Understanding Leverage, Margin, and Cost in Crypto Perpetual Futures

Skip to Part 4 in our Crypto Perpetual Futures Series

This video provides a comprehensive introduction to the key concepts of leverage, margin, and cost in crypto perpetual futures trading. Below, we’ve summarized the main points to help you grasp the essentials and apply them effectively in your trading journey.

Key Concepts Explained

1. Position Size

o The total value of the trade you want to control.

2. Leverage

o A multiplier that allows you to control larger positions with less money. For example, 2x leverage means you control twice the amount of your margin.

3. Initial Margin

o The amount of money required to open a trade.

o Formula: Position Size ÷ Leverage

o Example: A $1,000 position with 2x leverage requires $500 as the initial margin.

4. Maintenance Margin

o The minimum amount needed to keep a trade open. If your balance falls below this, your position may be liquidated.

o Example: For a $10,000 position with a 0.5% maintenance margin, you need at least $50 in your account.

5. Trading Fees

o Exchanges charge a small fee (e.g., 0.1%) for each trade. For a $10,000 position, this would be $10.

6. Profit and Loss Impact

o Your profit or loss is calculated based on the position size, not the margin.

o Example: A $10,000 position with 10x leverage and a 5% price increase results in a $500 profit, even though you only put up $1,000 as margin.

Examples of Leverage in Action

Low Leverage Example

· Position Size: $1,000

· Leverage: 2x

· Initial Margin: $500

· Risk: Lower risk of liquidation.

High Leverage Example

· Position Size: $10,000

· Leverage: 10x

· Initial Margin: $1,000

· Risk: Higher risk of liquidation if the market moves against you.

Risk Management with the xBratAI App

The xBratAI app helps traders manage risk by:

· Calculating the risk for each position.

· Suggesting a maximum leverage based on stop-loss positions.

· Providing sensible stop-loss levels to minimize liquidation risks.

Example: For SUIUSD, the app may suggest a maximum leverage of 26x and a stop-loss price of 3.25200. Traders with a lower risk appetite can opt for leverage below 10x.

Understanding Trading Platforms

Most trading platforms share a similar interface. Key elements include:

· Leverage Settings: Adjust leverage for long and short positions.

· Account Balance: Shows available funds.

· Position Size: Calculated based on leverage.

· Estimated Liquidation Price: The price at which your account will be liquidated if the trade goes against you.

· Cost of Trade: Includes the initial margin and trading fees.

Isolated vs. Cross Margin

1. Isolated Margin

o Only the margin allocated to a specific trade is at risk.

o Example: If you risk $500 on a $1,000 account, only $500 is at risk.

2. Cross Margin

o Uses your full account balance to keep a trade alive.

o Higher risk as your entire account balance is at stake.

Key Takeaways

· Leverage amplifies both gains and losses. Use it wisely.

· Always set stop-losses to manage risk effectively.

· Understand the differences between isolated and cross margin to choose the right strategy for your risk tolerance.

· The xBratAI app provides valuable insights to help you trade smarter.

What’s Next?

This video is part of a series on crypto perpetual futures trading. In the next videos, we’ll dive into real-world examples of trades, explore advanced strategies, and provide actionable insights to enhance your trading skills.

Stay tuned for more!

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