What is financial leverage?
Although HODL is still the most popular investment strategy in cryptocurrencies, more and more attention is drawn to other tools and derivatives entering decentralised asset markets.
One of the increasingly used instruments in the cryptocurrency market is financial leverage. This tool is not only used in cryptocurrency markets. Leverage is an important tool in corporate finance and applies to most financing investments.
Leverage is the use of borrowed funds to finance the purchase of an asset (e.g., Bitcoin), assuming the return or interest on the investment will exceed the cost of the loan.
In most cases, the debt provider limits how much risk he is willing to take. It is how the leverage limit is determined. In the case of asset-backed loans, the financial institution uses the assets as collateral until the borrower repays the loan. We only use a part of our investment capital, and the broker/lender covers the rest of the amount needed. Therefore leverage is a tool that allows you to get high returns with a relatively low capital outlay.
However, be aware that leverage carries a high level of risk. If your investment fails, you may lose your entire deposit!
Geco.one, a cryptocurrency derivatives exchange, offers a 1:100 leverage mechanism available for the 20 most popular cryptocurrencies. In addition, Geco.one provides complete risk control, allowing you to set a stop-loss and take-profit level before or after placing your order. That’s why you can try trading on derivatives in a safer environment without the risk of generating negative balance on your account.