What is Dynamic Leverage in Cryptocurrency Trading?
Leverage is a beautiful invention in trading. It is not specific to crypto alone.
Crypto is a relatively new asset class, leverage originally had a base in traditional markets.
Here, a broker allows a trader to trade much more than they would ordinarily have, exposing them to more trading opportunities. It is exciting.
However, since brokers vary different products, leveraging power also changes.
In CryptoAltum, a trader can leverage at most 500X.
Accordingly, a trader who deposits $360 can leverage 500X and trade over five standard lots of BTC at a spot rate of $36k.
However, leverage styles vary.
CryptoAltum, for instance, uses the Dynamic Leverage model. Here, the exchange automatically adjusts the overall account leverage depending on the number of open positions and volumes traded.
Thus, overall permissible leverage of any margin account changes depending on open positions and profitability/loss.
Interestingly, Dynamic leverage can also be fashioned to work differently.
For instance, leverage can be recalculated based on the margin requirements after every trading event.
The other style calculates margin requirements only whenever a position is opened. The leverage is constant throughout the lifetime of the position.