Articles on: Trading

Trading with Leverage

Leverage is a powerful tool used by traders to increase their exposure to the market beyond the size of their account balance.

While leverage can be used to increase your potential gains, it can also result in the loss of capital just as fast!

The way Morpher offers its users leverage is unique. When placing a trade you have the option to choose the amount of leverage you wish to employ on a variable scale from 1 to 10. The scale of the leverage directly translates to the degree to which your trade exposure will be multiplied by.

To understand how leverage affects our trades let’s consider an example.

Imagine you have 100 MPH Tokens to use to go long Gold. Shortly after making the trade, Gold increases in price by 10%.

With a leverage of 1 your exposure is 100 – it doesn’t change – and your return is 10.
With a leverage of 2 your exposure is 200, it doubles and so does your return; now 20.
With a leverage of 5 your initial invested exposure quintuples, and so do your gains returning 50.
With a leverage of 10 your exposure becomes 1000, and the result is a return of 100 tokens.
You can clearly see how leveraging your trades can be incredibly rewarding. Unfortunately, your losses can be multiplied in the same way as your gains.

Now, let’s assume that you made that Gold trade, but it didn’t turn out so well. Instead of increasing by 10%, the price of Gold falls by 10%.

Without any leverage you stand to lose 10 tokens, equal to 10% of your original investment.
With a leverage of 2 you lose twice as much, 20 tokens.
With a leverage of 5, you lose half of your investment, 50 tokens.
With a leverage of 10 you lose your entire investment of 100 tokens.

Remember, when leverage increases your exposure to the market it also increases your exposure to the spread. Make sure you check the spread of the market you are trading before making a high-levered trade.
Learn more about spreads here.

Negative Balance Protection

Morpher makes it impossible to lose more than your balance.
If you have a balance of 100 tokens and use it all on a trade with maximum leverage (10), then your position will close automatically in the instance of a 10% loss. This protects you from going into debt, by losing more than the value of your account. Furthermore, any position that decreases 100% will close automatically.

Margin Interest

Leveraged trading is very similar to trading with borrowed funds in traditional finance. Like all borrowed funds, positions with leverage incur a daily interest fee. Learn more about margin interest.

Updated on: 08/02/2022

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