The Ultimate Guide to Making More Money Trading Leveraged Tokens on Obiex Finance

Cryptocurrency Apr 1, 2022
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Imagine you have a pair of shoes, and you’re offered the opportunity to get more shoes by giving them to an actor about to go on stage. However, there’s a condition attached here. You can only get more shoes if the audience loves the actor’s performance and gives him a standing ovation. On the other hand, if the audience doesn’t like the performance, you lose the shoes. What would you do in this situation? Would you turn the offer down, or would you take it? If your answer is the latter, you’ll find trading leveraged tokens quite interesting.

Let’s explain how leveraged tokens work in the cryptocurrency market to give more context.

How do Leveraged Tokens Work?

Although leveraged tokens are bought and sold like regular cryptocurrencies, they work pretty differently from standard tokens and coins. Leveraged tokens enable traders to multiply their trade profits by either betting on the price going up (going long) or going down (shorting).

Therefore, when the price of the underlying asset changes, the leveraged token price changes based on the leverage.

To give a better picture of how leveraged token trading works, let’s say you are holding $250 worth of an ETHUP3X token. The leverage here is 3X, which means when the price of Ethereum (ETH) goes up by 3%, you make a profit of  9% (3×3%) which gives you $22.5, and if the cost of the coin goes down by 3%, you’ll lose 9% (3×3%) which is also $22.5.

Basically, for each 1% ETH increase that happens in a day, the ETHUP3X token increases by 3%, and for every 1% ETH decrease, ETHUP3X decreases by 3%.

Seeing as we’ve established how these unique crypto tokens work, here are four more things you need to know about leveraged tokens:

1. Leverage Tokens are short-term investments for experienced traders

Dealing with leverage tokens requires an expert level of experience in crypto trading because the risks involved are highly significant.  The volatile nature of cryptocurrency is even more prominent when dealing with leverage tokens. Your investment can take a massive hit with the same speed at which it can receive a considerable boost.

As a trader, it is advisable only to buy leveraged tokens when you are at least 95% sure that there will be a rise or fall in the underlying coin price soon. For instance, if you’re confident the price of ETH may rise soon, purchasing an ETHUP3X token can bring you a considerable profit  - if your prediction is correct. However, regardless of your confidence level, always consider the volatility of the crypto market. Furthermore, always keep in mind that leveraged tokens are short-term assets. Do not hold on to them for too long to avoid unnecessary losses.

2. Leveraged tokens are susceptible to volatility decay

One of the most significant risks of leveraged tokens is volatility decay or the negative impact of volatility on the investment.

To explain this concept better, let’s say you buy $100 worth of ETH. Two days after, the price of ETH goes up by 10%, making your investment worth $110. Then the next day, the coin price drops by 10%, which is an $11 drop, in this case, making your investment worth $99.

Suppose you had used those $100 to buy an ETH leveraged token that triples the coin profits. That would mean a 30% increase two days after your purchase, which would be $130. However, it would also be a 30% loss the next day when the coin drops in price, costing you $39 and leaving you with $91.

In a nutshell, leveraged tokens make your investment more susceptible to volatility decay and more significant profit losses.

3. Rebalancing significantly affects the price of leveraged tokens

Rebalancing is how the positions of leverage tokens are automatically programmed to decrease or increase to avoid liquidation issues and maintain the target average. For instance, if the price of ETH changes, the ETHUP3X token might have to sell or buy BTC to keep its 3x position.

Most tokens are rebalanced daily; they are sold or bought at a stipulated time to increase or decrease leverage. Token rebalancing can also happen automatically if the asset price changes drastically.

4. Leveraged tokens are a simple way to trade leverage

Margin or leveraged trading can be overly complicated and require constant management. As a crypto trader, leveraged tokens allow you to dive into trading leverages with less work, less pressure and less complexity. You also don’t have to worry about margin (money borrowed from a crypto exchange) or collateral when trading leverage tokens.

There is also less potential for liquidation because of the rebalancing process; even when the token falls in value, it will sell off some of its position to ensure it is not cleared out.

Where can you purchase leveraged tokens?

Obiex Finance offers leveraged token trading to its customers. All you have to do is download the app or update your app, and you can buy or sell leveraged tokens directly from your obiex wallet.

To buy leveraged tokens, follow these steps:

  • Tap the convert icon in the middle of your obiex wallet page.
  • Tap on swap leverage,
  • Select the coin you want to use to buy the token you want. For instance, you can choose to swap from USDT to ETHUP3X or BUSD TO BTCDOWN10X.
  • Once you select your preferred coin to token swap, tap the ‘get quote’ tab, then tap ‘confirm’ to complete the transaction.
  • Your leveraged token is now in your wallet, ready for use.

To sell leveraged tokens, follow these steps:

  • Tap the convert icon in the middle of your obiex wallet page.
  • Tap on swap leverage,
  • Select the leveraged token you want to exchange for the coin you want. For instance, you can choose to swap from ETHUP3X to USDT or BTCDOWN10X to BUSD.
  • Once you select your preferred token to coin swap, tap the ‘get quote’ tab, then tap ‘confirm’ to complete the transaction.
  • You can now swap your coin to NGNX and withdraw directly to your bank account to enjoy your leveraged gain.

Takeaway

If you are a crypto trader with a lot of market experience or an investor with a high-risk appetite, leveraged tokens are a simple way to get into leveraged trading. With these tokens, you don’t have to commit as much time and money as you would with full-scale leveraged trading.

Conversely, if you are new to crypto trading or don’t have much experience, trading with leverage tokens may not be the best option for you just yet. You could try out other trading strategies like spot trading and day trading while doing more research on leveraged trading/leveraged tokens.

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Josephine Inika

Slightly obsessed with content.

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