Cryptocurrency Derivative Trading is a feature that allows you to trade with a higher position size whilst defining the amount of collateral you are prepared to risk. It means that traders can realise larger profits on successful trades.  

The capital that makes up the increased position size is essentially loaned to the trader, with their original stake at risk, as collateral.

Example of Cryptocurrency Derivative Trading

Bob has one Bitcoin to trade. The current price of Bitcoin is $10,000. Bob, therefore, has $10,000 of collateral to use as a margin.

With standard Spot Trading, if the price of Bitcoin increased by $100, Bob would make a profit of $100 (minus any trading fees).

However, if Bob was feeling particularly confident that the Bitcoin price would increase, he might wish to leverage his one Bitcoin to make a larger trade. Geco.one, for example, offers up to 100x leverage as part of its crypto derivative trading offering.

In our example, Bob wished to use 10x leverage, using his 1 Bitcoin as collateral. At a BTC price of $10,000, his position size (with x10 leverage) would be $100,000.

If Bob opted to take a ‘long’ position - betting that the price of Bitcoin will increase – for every $1 the Bitcoin price increase, Bob’s position would be $10 in profit. However, for every $1 the Bitcoin price dropped below his entry price ($10,000), Bob’s position would be down $10.

While the Bitcoin price is moving in Bob’s predicted direction, he can hold his trade open as long as he likes (depending on the T&C’s of the exchange he was using), paying a small financing fee (usually every 24 hours). If Bob decides to close his long position when the price of Bitcoin reaches $15,000, he will make a profit of $50,000 (minus fees). Had he been using 100x leverage, his fees would have been $500,000.

What is the risk related to leverage trading?

Geco.one operates a ‘no negative balance’ policy on its crypto derivatives exchange. It means that the maximum you can lose on any single trade is the amount of margin you allocate to the trade in the first place.

To use the example above, if Bob’s 10x leverage trade didn’t work out so well and the price of Bitcoin dropped to $9,900, his initial $10,000 margin would reduce to $9,000 (before fees). If the price of Bitcoin dropped to $9,000, Bob’s 10x trade would effectively be down $10,000 - the entirety of his margin – and therefore, he would be liquidated and lose the $10,000 he had opted to trade with.

How Geco.one helps you lower the risk of Cryptocurrency Derivative Trading – and maximise profits!

Geco.one’s negative balance protection feature means you can never lose any more funds than you already have in your Geco.one account.

The Geco.one crypto derivatives exchange also offers a full range of order options, so you can place a stop loss to reduce your liability or lock-in gains – and set a take-profit order so you don’t miss out on any gains!

Sign up to Geco.one and try Cryptocurrency Derivative Trading today!