Analyzing Leverage Ratios and Altcoin Price Movements

MAY 05, 2023 • 17 Min Read

Priyansh Patel Priyansh Patel
The authors have not purchased or sold any token for which the authors had material non-public infor

Introduction

Leverage is a double-edged sword, and is frequently misunderstood in the realm of crypto trading. While it can act as a profit multiplier for disciplined traders, it simultaneously serves as the harbinger of liquidation emails for those who do not respect it. However, this perspective alone is rather shortsighted, as it overlooks the key advantage of leverage: the reduction of counterparty risk.

By employing leverage, traders can take normal position sizes while reducing counterparty risk, as they need to hold less collateral on the exchange to achieve their desired position size. This proves particularly beneficial in scenarios involving exit scams or bankruptcy declarations by exchanges — occurrences that are, unfortunately, not uncommon in the cryptocurrency space. When such events transpire, the trader only loses the amount on the exchange, safeguarding most of th

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