As cryptocurrency trading continues to surge in popularity, it’s important for traders to stay up-to-date on the latest innovations in the space. One such innovation is the leveraged token, a tool that allows traders to gain exposure to leveraged trading without the complexities of margin and liquidation.

In essence, leveraged tokens are a simplified way to gain leveraged exposure to cryptocurrency assets. With both variable and fixed leverage options, these tokens are designed for quick-fire trades rather than long-term holding.

But what sets leveraged tokens apart is their unique ability to rebalance and maintain target leverage by adjusting their positions. Every exchange has its own method of rebalancing these tokens, and today we’ll explore the top three platforms that offer this exciting trading tool. So sit back, relax, and let’s dive into the world of leveraged tokens.

WHERE CAN YOU TRADE LEVERAGED TOKENS

• Binance
• Kucoin
• Pionex

Binance

The Binance Leveraged Tokens (BLVTs) are tokenized versions of leveraged futures positions. It supports variable target leverage from 1.5x to 3x so that potential gains can be maximized in times of price appreciation, and liquidation risks can be reduced during periods of price declines.  

BTCUP, BTCDOWN, BCHUP, and BCHDOWN  are some examples of BLVTs. Using BTCUP, you can maximize leveraged gains of 1.5x to 3x when Bitcoin rises. When the value of Bitcoin increases by 1%, the 3x BTCUP increases by 3%, and the BTCDOWN allows you to generate leveraged gains between 1.5x and 3x when the value of Bitcoin decreases. 

Advantages of BLVTs 

• 👉 Variable leverage – With variable target leverage from 1.5x to 3x, BLVTs reduce the effect of volatility drag. Sideways markets are less impacted by BLVTs, and pricing moves in one direction tends to strengthen them. 

• 👉 Liquidity – A fair price will be available for BLVT tokens because Binance will be the sole provider of liquidity and issuer of the tokens. If the supply runs out, the Binance exchange will inject capital, create more orders, and sell more tokens on the open market. With this method, users will transact their tokens efficiently and receive their orders reasonably.

• 👉 Rebalancing – Unlike the other Leveraged Tokens that rebalance daily, BLVTs are not forced to rebalance unless extreme losses. It will only rebalance the positions needed to maximise profits on upswings to avoid liquidation. Thus, ‘normal’ market fluctuations will not result in token rebalance, and the underlying asset value will stay correlated.

• 👉 Low fees – Compared with other existing leveraged tokens, Binance Leveraged Tokens are cheaper. As a result, BLVTs are unlike any other existing token, charging a low daily management fee of only 0.01%, with an annualised cost of only 3.5%.

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Kucoin

KuCoin Leveraged Tokens are a perfect choice for those who want to take advantage of the spot market and leverage the price fluctuations in order to make some profits. The tokens are named using the underlying coin + multiple + long or short direction, with 3x long being BTC3L and L standing for long.

KuCoin Leveraged Tokens have no liquidation risk despite their being a trading vehicle rather than a buy & hold one; this is due to the rebalancing mechanism which always keeps the debt ratio in equilibrium. Therefore, users will not lose all of their investment when the price drops, but they should understand that volatility may still lead to large losses.

The “Subscribe” and “Redeem” functions of KuCoin Leveraged Tokens operate three times a day, on an execution basis; thus, it’s generally recommended to use the “Trade” function to avoid any uncertainties. All in all, these leveraged tokens offer an exciting way to make profits by leveraging its spot market without having to worry about liquidations.

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Pionex

The rebalancing mechanism of the Pionex Leveraged Tokens is optimized to include both fixed and variable leverage. Leveraged Tokens are rebalanced each time the spot price changes by 10% and at 00:02 a.m.

Advantages of Pionex Leveraged Tokens

• Pionex avoids liquidation risk, more beginner-friendly.

• Margin Trading: Earn more and lose less

• Adapt Grid Trading and other trading tools to reduce volatility drag.

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FEATURES OF LEVERAGED TOKENS

• 👉 Rebalancing – Rebalancing increases and decreases the exposure to maintain the target leverage and prevent liquidations. Many tokens rebalance every day; a particular time is fixed to buy or sell to increase or decrease the leverage. Also, tokens can rebalance if there is a change in the market price depending on the exchanges automatically.

• 👉 Short-term Trading – Leveraged tokens aren’t for long term trading. You buy and sell them quickly.

• 👉 Trading Fee – For you to trade on leveraged tokens, you have to pay some certain fee such as funding fee, daily management fee, which varies on different exchanges

ADVANTAGES OF LEVERAGED TOKENS

• 👉 Higher Profit – Leveraged token makes it easy for you to easily create more profit than the rest of the market and losses.

• 👉 Lower Risk of Liquidation – Rebalancing helps to reduce the risk of liquidation. Since it will sell some of its positions, it will not be completely wiped out even if the token value drops.

• 👉 Risk management – When trading leveraged tokens, you don’t have to worry about liquidation risk, margin and collateral. If you are at a profit, it will automatically reinvest it into the underlying asset, and it will rescue chances automatically if at a loss.

DRAWBACKS OF LEVERAGED TOKENS

• 👉 Short term Investment – if you purchase and hold ETH, and it rises in value over time, you will profit regardless of day-to-day market conditions. However, if you buy and hold an ETHBULL token, any price movements will be magnified, resulting in a significant loss.

• 👉 Volatility Decay – Simply means a negative effect on the investment. Suppose you bought $1000 worth of bitcoins. Your investment has increased to $1100 overnight due to a 10% increase in price. But the next 24 hours, your investment decreases to $990  because of the 10% decrease in price, which would be a $110 loss.

Let’s assume you invested $1000 in a leveraged token 3x Bitcoin? Thus, you would get a 30% increase in the first 24 hours, raising your investment to $1300. However, you would also lose 30% of your money on day two, meaning that you would only have $910. A slight loss on average crypto trading will result in a more significant loss on a leveraged token.

• Extra Fees – Leveraged Tokens charge trading fees, daily management fees, issuance/redemption fees, and funding fees, varying among exchanges.

• Scarcity – Leveraged tokens are not sold on many exchanges.

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Conclusion

Leveraged tokens are for those who want leverage without dealing with the nitty-gritty of leverage trading. When trading on the spot trading market, leveraged tokens are the most convenient way to gain access to margin. However, care should be taken when dealing with them as they can also amplify losses.

CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com