Leverage Trading Explained — Step-by-Step Guide & Transcript

[00:01] much larger amount of money than you actually have, almost as if you were taking out a loan to trade. And that's called leverage. You can take R$1,000 and manage R$10,000 or even R$100,000 with just R$

[00:14] for those without capital, but it also brings the greatest risk. The works properly. So, in this video, I'm going to explain from scratch what leverage is, how it works, the logic behind it, the advantages, the

[00:27] computer screen to show you everything in practice, how you can access the brokerage and safe way. [Music] This video might be a bit long and full of details, capture index below to skip to the video if you want to learn

[00:41] to help you understand leverage is to imagine the following scenario. You want to buy a property that costs R$ 100,000, [music] but you don't have R$ 100,000, down payment. So let's suppose that in this imaginary world the bank will accept

[00:55] your 10%, right? With a down payment of 10,000, you can buy a property. This means you used 10,000 to make a down payment on an asset that costs 100,000. You basically got financing approved after the credit check, and now

[01:09] you own and control a $ 100,000 property. So you're using a small value to control a larger value. Now imagine that in that same example, during that same period, you bought a property and shortly afterwards the property value increased by 10%

[01:22] to 110,000. Then someone came along and said, "I'll pay 110,000 for the property." But all you paid was a 10,000 down payment. And then you sell it for 110,000. And then you basically make a profit, right, R$10,000, or R$ 1,000 on the value of the property if

[01:36] you sell it. In other words, your RO and return on investment were 100% brokerage firm, you can basically do the same thing, but without needing a credit check to get a loan. And here are the

[01:49] terms that I will be using from now on. In this example, we'll call the input "margin." So margin is the money you you put up that will serve as collateral. And we'll call the house a

[02:03] position, which is the value that you are actually controlling. ROI stands for return on with numbers so you understand before we move on to the practical part. Margin times position size. So imagine the following scenario. You have 1,000 and then you

[02:19] leverage it tenfold. In other words, your position, the size of your position, will be 10,000. You took 1000 and multiplied it by 10. With 1000 you are as I told you, we call the amount you invested margin, the

[02:34] leverage here was 10 times, and the position we control is position we control is 10,000. So, [music] with $000 you're controlling $10,000. Let's suppose you're making a purchase transaction,

[02:46] right? We'll call this a long position or simply a purchase, right? That you expect the asset to rise. If the asset's value increases by 10%, you will earn 100% of your capital. Why will you earn 100% of the capital? Because you

[02:59] will earn 10% on the total position value . So, your position is 10,000. . So, your position is 10,000. If it goes up 10%, 10% of 1000 is 1000. So, for every 10%, when you're using 10x leverage, for every 10%

[03:13] that the asset rises in your favor, you profit 100% of the opposition. But that's where the same variation applies downwards. If the asset price falls by 10%, and you were predicting that the asset price would rise, you lose 100% of your capital and

[03:29] you will be liquidated. So, imagine this: imagine you bought Bitcoin at $50,000,000, which is this little green line here, and it goes up 10%, position. So, if the market fluctuates by 10%, you make 10%, and if it goes down

[03:45] 10%, you would be completely wiped out. So you have to imagine that this 1,000 is the guarantee you gave to the brokerage firm to control the brokerage firm to control the 10,000 position. And if you lose close to 10%,

[03:58] in this example here, your losses would exceed the value of your guarantee. Soon the brokerage will automatically close the transaction and settle your account, right? Take simulate leverage here on the Bitcoin for Cycle website. You can

[04:12] go to the Bitcoin for Cycle website and then look for futures. When you look So, for example, let's suppose we made an entry when Bitcoin was at 50,000 and we put in $. With a margin of 1,000, Bitcoin went up to

[04:26] 55,000, meaning it increased by 10%. We're going to have a net profit of 1,000. But what if Bitcoin goes up to 100,000? I will make a profit of 99,985.

[04:38] I'm going to get a return of almost 1000%, 998% on my capital. Why? Because I'm managing a position of 10,000 and I entered the trade when the asset was worth 50,000. So, if I

[04:50] entered this position when the asset cost 50,000 and it went up 100%, that means I make a 50,000 and it went up 100%, that means I make a 100% profit on the position. 100% of my position is basically equal to $1,000. Henrique, why don't you just give

[05:03] exactly $10,000? Because of the fees, right? You pay a fee to open and it simply, with 10x leverage , a 1% change in the chart will give you a 10% profit or loss. So,

[05:19] the leverage, let's say you want to use a higher leverage, like 50 times leverage. This means you're using $. $1,000 to control a $50,000 position. So, if the market went up, right, from

[05:33] $50,000 to $0,000,000, you would earn , look, R$250,000, more than 4,000%. Obviously, this is just one example. The broker allows you to brokerage allows you to use it up to 100 times, right? 125 times in some

[05:48] leverage, I never use more than 10 times the amount to make a trade. Because you this: for every time you leverage, you increase the profit or loss of the operation by 1%. So, it's very simple. If you leveraged twice

[06:04] here, basically for every 1% the chart moves, you earn 2% of your money from the margin you put in. So, if you buy you put in. So, if you buy Bitcoin here at 50,000,000 and it goes up 1%,

[06:16] means you'll earn 2% relative to your capital. If you leverage five times, for every 1% the chart moves, you profit 5%. If you leverage 10 times for every 1% the chart moves, you profit 10%. Repeat this process up to

[06:32] and the broker allows you to do so, I don't recommend it, because for every 1% you gain 100% of the capital. So you have to imagine this: when you have 1,000 and you leverage 100 times here, 100 times, that

[06:47] position of 100,000. So, with $000 I 'm controlling a position of 100,000. And 'm controlling a position of 100,000. And for every 1% increase, what is 1% of 100,000? It's 1000. So, for every 1% that goes up or down, the capital will fluctuate

[07:00] by another 100%, right? Or roughly 100%. And then you can use this calculator here. free. You can go here and simulate, and enter the asset you want to trade. For example, uh, Bitcoin. You enter Bitcoin here and it will get the

[07:13] price of Bitcoin or Ethereum. The price of Ethereum will appear here, and within this calculator. Here you enter the down payment, here you enter the margin, which is the capital for the transaction. Here's the target of the operation, and here's

[07:26] whether it will be long or short. And here's your stop los ls. And an important observation here in theory. Why in theory? Because in practice, the brokerage firm the target percentage, since they'll have to take their profit. She profits from the fees,

[07:41] if you come here to Bitcoin for Cycle, I'll give you an example: with 10% leverage, I would be liquidated with 9.6% volatility, because this difference, this little spread here, is the broker's profit

[07:54] closing a transaction . That's why the distance to settlement will always be a little shorter than it is on paper. But this is just so you understand. So, the brokerage firm doesn't profit from

[08:06] fees. When you take a market share, the money goes to another trader who is in the opposite position, not to the brokerage firm. Okay, one very show you examples here within the Binance exchange. But it

[08:19] within the Binance exchange. But it leave the link for you to create an account below; these are the most reliable exchanges I use for trading. Both the Binance link and the

[08:32] Babit link will be below. And don't worry, because the layout of the brokerages leverage is located here in the upper right corner on Binance, and here on By Beat it's also in the upper right corner, where you can adjust the leverage. So

[08:46] here at the brokerage there's a leverage option, from one time up to 150 times life, but look, I'll just keep it at 10 times . For example, here within the exchange, both Binance and Bybit, there is a function called isolated

[08:59] or cross-platform. So, in both brokerages, in any futures brokerage, you'll have these two modes here, isolated and cross-border. The name might change, but basically it's going to be those two. What are isolated and

[09:11] cross-modalities? Well, basically, the isolated modality uses your margin money as collateral. So all you can lose in the transaction is You entered the trade with $000, the 1000 is your margin, the 1000

[09:25] lose any more than that. In cross-margin trading, the brokerage firm will essentially use all the available funds in the futures account as collateral. So let's suppose I made a transaction on Binance with $. The $ would be displayed here below in

[09:39] the margin operation. I'll show you everything in practice. And that other remaining amount in the account would also serve as collateral. So I'll give you an example to help you understand. Imagine the same example. You have a margin of $000,

[09:51] you put in $000, leverage 10 times with a broker, control a position of 10,000 and make a buy trade. But you left another 1,000 in the account. margin and you have another 1000 available in the account, and you're in

[10:05] cross-border mode. If the market goes up by 10%, you earn 10% of the 10,000, which is 100% of your capital. However, for you to be liquidated and lose all your capital, the market would have to fluctuate by 20% to trigger your liquidation. Why? Because when the

[10:20] market consumes all of its margin, it will use the balance in the account as collateral. Basically, you double the distance to your settlement. If before you were liquidated at 10%, since you left an extra $1,000 in the account as

[10:33] collateral, it's like saying: "Look, broker, I put this $0,000 here and it serves as collateral. But if the market falls more than 10%, don't take me out of the trade. I have this other amount here for you to use as collateral. And then,

[10:45] if the market goes down 20%, you lose everything. You lose all the money that was in the trade and all the money that was in the account balance as collateral. It's a kind of suicidal trade, where basically you use all the money in the account to

[10:58] do this, but that's for another video in São Paulo , and I don't recommend it for beginners. In other words, you increase the liquidation distance by adding more margin, right? You put more margin in the account, I don't recommend it. And another

[11:11] important thing is this thing up here called funding, right? The funding rate. Here in Bitcoin for Cycle it also calculates the funding rate. Here, funding. What is the funding rate? Basically, imagine the The funding rate is the

[11:24] operation open, you have to pay a funding fee. And this fee is paid every 8 hours. So, basically, this is the fee And it can vary both positively and negatively. I'll make a

[11:38] video just about fees to explain this here, but what I want you to understand is that these fees are paid every 8 hours and the value of this fee is calculated based on the position. So right now it's 0.002%.

[11:52] receive a fee. And why does this fee exist? Well, basically it's to keep the price of the asset, right? In the example here, Bitcoin, pegged to the real price. So, buying and selling that asset, the price can deviate

[12:07] from the original asset price, and then they start charging more fees to bring it back and balance it to the real price of Bitcoin. So this fee buying or selling. If you want a video about this, comment. Here's

[12:20] practical. How do we access leverage? Well, first thing, log into the broker. I'll leave the links to the brokers here, both Binance and broker, you'll look for the language and change it to Portuguese (

[12:33] Portugal). Or in this case, it's just general Portuguese. So you click here. Why? Because the futures market is already available for Brazilians. You Portugal), both on Binance and Bybit. It's the same thing on both brokers

[12:46] Portuguese (Portugal). Then you come here to futures, click here on futures, USDM. And here you just press this " stay". I'll move my image here to a corner so it doesn't get in the way. And well, here's the broker's layout.

[12:59] leverage button. So I can leverage from 10 times up to 150 times. So let's use the same example. Let's take $. Let's take $ and enter the trade. You see that Where does the size appear? Here you put the size of the

[13:14] position you want. So, for example, I want a position of 1,000. To open this 1,000 position with 10 times leverage, I'm going to use the isolated option. Always operate in isolated mode. Why? Because I

[13:28] losing the money that is in this operation. So you click here to confirm and type the value. When you type the value, you see that the you need to have in your account to open the operation. So 98.3. Let's click here

[13:42] to buy. You can do it like this, typing the value, or you can come here and drag the percentage of your account. So there's this little slide here, okay? For example, I have 655 in my account. If I take 50% here, it will

[13:57] take 50% of this value here, which is approximately $326. See, the cost is appearing below. And the position I'm going to open will be of 3.218. So, let's suppose I want to take 10% of what's in my account. 10% of

[14:11] 10% of what's in my account. 10% of 655 will give me 65, and the position size is 643. Why? Because I'm leveraged 10 times. If I changed this to 100 times, for example, and took 10% of my account, it would still

[14:25] take the same 64, 65. But the position I'll be controlling is 5,000. to 10 times leverage. Then, you click confirm. Here you choose the

[14:37] cross or isolated modality. And I'll take 10% of my account and open a market price operation, see? Buy. Confirm. And automatically here in the lower corner, all the operation data appears. So

[14:50] Bitcoin with 10x, meaning 10x leverage. The position size is 643. The entry price was... 64,304. The liquidation price here, which is the

[15:02] price at which I'll lose everything, is 58,000. price at which I'll lose everything, is 58,000. 58,138. So if we take 58, let me see here, from here to here, 10% will give, on average, 57, 58, which is

[15:15] because the brokerage always liquidates a little earlier due to fees. And here's the margin and here's my ROY, my return on investment. So, basically, I opened a trade with 10 leverage, with

[15:27] 63, I'm controlling a value of 643. And here, clicking on TPSL, which is take profit to stop loss, I can place example, I want to exit this trade when Bitcoin hits 80,000, then it

[15:43] shows here how much I'll gain. Or I want to exit when Bitcoin hits 60,000, then it shows here how much I'll lose. So all of this here You configure this here in this area of ​​the brokerage. But you don't need this to

[15:55] understand and simulate your operation. You can simulate your operation here. asset, enter the amount you plan to enter, and set the margin, which is the amount you want to trade. Here, it already calculates the

[16:09] funding rate in the right corner. enter Bitcoin at $50,000, and when Bitcoin hits $50,000, I want to put in $ 10,000 of margin with 10x leverage, and I want to exit when

[16:23] Bitcoin hits $90,000. If I enter Bitcoin at $50,000 with a $10,000 fee times 10, meaning I'm controlling $0.00 of position, and Bitcoin rises to $ 90,000, I will profit $79,000. [Music]

[16:37] R$ 406,000. And here is the funding rate, it's the amount I pay per day, already calculated in real time here to maintain the operation. So I'll pay 8 per day to hold $0.00, 1,000 in replacement, and this

[16:50] rate will fluctuate and vary according to the funding rate here. So there's not much of a secret. I hope you understood.