Leverage NFT Trading: How to Long NFTS with 10x Leverage
Leverage trading is a potent financial strategy that offers both high risks and high rewards, a tool frequently employed by seasoned investors to amplify their potential returns. While this method has been commonly used in various markets like futures and indices, it has gained notable traction in the evolving crypto space and even extended into Non-Fungible Tokens (NFTs).
What is leverage trading in crypto and NFTs?
Leverage allows traders of any market, like crypto, to trade contracts with a larger value than they put down by borrowing through the exchange. Thus, greater capital efficiency is achieved with those who trade with leverage, increasing their exposure and potentially increasing their gains. Still, we must remember that the opposite is true, and leverage can also magnify losses.
This trading strategy allows traders to “long” or “short,” thus predicting the price action of crypto or NFT projects. For instance, traders might go short on an NFT project if they believe its value is inflated and likely to decrease or go long if they anticipate an increase in its underlying value.
The amount borrowed in a trade or leverage you use is indicated as a ratio such as 1:5 (5x), 1:10 (10x), or more, depending on the platform.
The most popular way crypto traders use leverage is through derivatives like futures and options contracts. And because of the financialization of NFTs, futures contracts are now available to traders interested in leverage trading NFTs.
Before we share how to long NFTs with leverage, let’s go through an example with 3x leverage.
Example of a 3x Leverage Long
Let’s take our fellow degen NFT trader, Alice, who sees some positive movement in the market for Moonbirds, but doesn’t have the liquidity at the moment to purchase one. Feeling pretty confident in the short-term upside here, Alice goes to nftperp and creates a long position with 3x leverage.
With 3x leverage, Alice’s initial MR is 33.3%, and at a Moonbirds floor price of 5.62 ETH her position would reach the first liquidation level. Fortunately for Alice, Moonbird’s price appreciated significantly over the next few days, and it reached 12 ETH. Once it happened, Alice decided to close the position and pocket her gains.
At a Moonbirds floor price of 12 ETH, Alice’s PnL is a solid 2.07 ETH before accounting for the funding payments and some small transaction fees.
Benefits of leverage trading
- Enhanced Trading Capacity
Leverage enables you to borrow capital, which amplifies the size of your trading positions beyond what your initial investment would allow.
- Amplified Profit Potential
The enlarged trading positions made possible through leverage can magnify your returns compared to non-leveraged trading.
- Optimized Use of Capital
Leverage allows for a more efficient utilization of your funds. You can maintain a more modest cash reserve in your trading account yet still engage in larger trades. This liberates your capital for other investment opportunities.
Cons of leverage trading
- Magnified Losses
Just as leverage can amplify gains, it can also magnify losses. A slight unfavorable shift in crypto prices can result in significant losses, quickly wiping out your initial investment.
- Liquidation Risk
Exchanges and brokers often have automatic liquidation policies. If your margin level falls below a certain point, your positions may be automatically closed to limit further losses, often at an unfavorable rate.
- High Costs and Complexity
Using leverage often involves additional fees and charges that can cut your profits. Moreover, leverage trading is complex and requires a solid understanding of the crypto market to manage effectively.
How to Long NFTs with 10x Leverage
- Start on nftperp’s trading page and connect your Metamask in the top right-hand corner. Then ‘allow’ nftperp to connect to your wallet, and you will be ready.
- Now that your wallet is connected, you can select which NFT collection you want to trade. Select the button shown below and choose a collection from the available options.
- Now that you have chosen the collection you want to trade, select ‘Long’, the amount of the NFT collection you want to trade, and the leverage you want to take. Drag the leverage slider to 10x if you wish!
Enter the values you wish and use the slider to determine your leverage. Press “Open Position,” and your trade will be opened!
- Now that your trade is opened, you will see details like the Mark Price, Index Price, 24h Volume, funding rates, and the assets market cap.
You can also find data on your current positions, trading history, and funding payments at the bottom.
Leverage trading in cryptocurrency can offer the advantages of greater purchasing capability and the potential for amplified profits. However, it’s crucial to recognize that this increased buying power also comes with elevated risks, as it can enlarge the scope of possible losses. Before engaging in leveraged trading, it’s essential to thoroughly understand the market conditions and the specific terms associated with the leverage offered to make informed and cautious trading decisions.