Long with leverage in margin trading: A complete guide for beginner traders

Margin trading allows investors to use leverage to increase the size of their positions. Long with leverage and short strategies are two key approaches that traders use when trading on the spot market. Let’s understand how these mechanisms work and the principles behind them.

Main Types of Positions in Margin Trading

Margin trading involves working with two opposing strategies. When using long with leverage, the market participant expects the asset’s price to rise and opens a buy position, borrowing funds. Conversely, the trader anticipates a price decline and opens a short position.

Long with Leverage: Growth Strategy

Long with leverage is used when a trader expects the asset’s price to increase in the future. The mechanism works as follows: the investor buys the asset at the current price and plans to sell it later at a higher price. Thanks to leverage, the position size can be increased through borrowing, allowing control of a significantly larger amount of coins than the available balance.

How Long with Leverage Works in Practice

Let’s consider a specific scenario. A trader expects Bitcoin’s price to rise and wants to initiate a strategy on this asset.

Trade parameters:

• Trading pair: BTC/USDT
• Starting price: 50,000 USDT per coin
• Leverage ratio: 5x
• Own capital in spot portfolio: 10,000 USDT
• Position volume: 1 BTC

When opening a long with leverage, the system automatically borrows 40,000 USDT. Thus, the trader can purchase a full 1 BTC at a price of 50,000 USDT, using only 10,000 of their own funds. When the price of Bitcoin rises to 52,000 USDT after a few days, the trader can close the position by selling the coin.

Profit calculation: Profit will be 2,000 USDT according to the formula: (52,000 − 50,000) × 1 = 2,000 USDT

After selling, the trader repays the borrowed 40,000 USDT plus interest payments, keeping the profit.

Short Position: Opposite Margin Strategy

When a trader expects the asset’s price to decline, the opposite approach is used. In this case, the investor borrows the coin itself, sells it at the current price, and plans to buy it back later when the price drops. The difference between the sale price and the purchase price becomes the profit.

Practical Example of a Short Position

Suppose a trader predicts a decline in Bitcoin’s price.

Operation parameters:

• Trading pair: BTC/USDT
• Current price: 50,000 USDT
• Leverage ratio: 5x
• Initial balance: 10,000 USDT
• Position volume: 0.8 BTC

When opening a short position, the platform automatically borrows 0.8 BTC and immediately sells it at 50,000 USDT. At this point, the position’s value is 40,000 USDT (0.8 × 50,000), and the total assets in the portfolio become 50,000 USDT.

When the price drops to 48,000 USDT, the trader can buy back 0.8 BTC for 38,400 USDT (0.8 × 48,000) and return the borrowed coins.

Final result calculation: Profit amounts to 1,600 USDT, calculated as: 50,000 − 38,400 − 10,000 = 1,600 USDT

Important Aspects of Margin Trading

Margin trading involves certain costs that must be considered when calculating the final profit. Traders should account for trading commissions for each operation and interest payments for using borrowed funds or assets. These costs affect the final profit size, and in the examples above, they were not included for simplicity.

Additionally, working with long with leverage and short positions carries increased risk. Using leverage can both amplify profits in favorable market movements and accelerate losses if the market moves against the position. Before starting leverage trading, it is essential to fully understand the mechanism and carefully manage the risks of your positions.

Conclusion

Long with leverage and short positions are powerful margin trading tools that allow profit extraction in both rising and falling markets. Successful application of these strategies requires a clear understanding of how they work, careful planning, and ongoing risk management. Beginners are advised to start with small leverage volumes and gradually gain experience in using long with leverage and other margin instruments.