Leveraged Crypto Tokens – A Novel Way to Trade Crypto for Leverage Trading Aficionados

What are the leveraged crypto tokens?

Leveraged Crypto Tokens are a great way to trade crypto if you love the high risk/high reward nature of leveraged trading.

Most of the leverage trading opportunities in crypto markets have mirrored those available in traditional finance. Leveraged crypto tokens, however, are different. These are tokens issued by crypto exchanges to help users take advantage of leverage in spot trades.

Let’s say a crypto exchange issues a leveraged token called ETH_X5, which is tied to the price of Ether and has a leverage of x5.

This token would go up in price by 5% whenever Ether goes up in price by 1%. When Ether’s price drops by 1%, the price of ETH_X5 declines by 5%.

Using the leverage exposure multiple built into the leveraged token allows the exchange to offer ETH_X5 for spot trades.

This is a basic leverage token example. Each exchange with leveraged tokens has its own varieties, with some being structured in a more complex way.

What are the main advantages of leveraged crypto tokens?

Leveraged token advantage 1: Simplicity. Leveraged tokens are a simpler way of trading compared to actual leveraged borrowing. Traders unfamiliar with derivatives products can stay within the boundaries of the more familiar spot market.

Leveraged token advantage 2: Learning and experience opportunities. While risky on their own, leveraged tokens are a good way to gain exposure to leverage trading without participating in the even more risky derivatives market.

Leveraged token advantage 3: Opportunity to multiply profits. The last but not the least benefit of leveraged tokens is higher potential returns, just like with any other type of product based on using leverage.

What are the main drawbacks of leveraged tokens?

Leveraged token drawback 1: The major drawback of these tokens is the same as that of leverage trading in general – the higher risk/volatility associated with these types of products.

Leveraged token drawback 2: Lack of standardization. Depending on the crypto exchange, some leveraged tokens may be structured in a complex way, which may lead to a misunderstanding of these products by traders used to just the standard leverage.

Leveraged token drawback 3: Being a high-risk trading product with significant volatility, leveraged tokens are not suitable for long-term investment or HODL.

Where to find leveraged crypto tokens?

Leveraged tokens are available on some crypto derivatives exchanges, e.g., Binance, KuCoin, and OKX. Each exchange has its own leveraged tokens, and there is very little standardisation in this area.

If you decide to use these tokens, always keep in mind their relatively risky nature!