The Creative Power Of Leverage

If Only…

Have you ever wished you could go back in time and buy your favorite Crypto asset at rock-bottom prices? I don’t know about you, but missing out on a killer entry gets to me, especially when I expected an excellent outcome, but for whatever reason, managed to miss the window of opportunity. Kadena (KDA) was one of those projects for me. I identified it early on and somehow got sidetracked. Needless to say, I missed an amazing opportunity.

More recently, I had a similar scenario with Picasso, a project in the Polkadot ecosystem. I had set an order to buy some Picasso (PICA) at approximately $0.001. My order was however taking its time to trigger, and so, once again… I got sidetracked. I canceled my order and snapped up something else that had managed to catch my eye. Within a matter of a few weeks… Picasso had rallied 2700%, and I had missed it!

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It’s a lot worse when you can correctly identify a project, and then for whatever reason, it manages to evade you somehow, than to simply miss a move altogether. However, all is not lost, especially if you are experienced in the art of leverage trading. The appropriate use of leverage can transport investors back in time, so to speak. The following example is a brief explanation of this dynamic, and how to effectively manage it.

Recreating A Missed Opportunity

As some of you will know, industry leaders who miss out on significant moves in the market, often endeavor to crash that particular market, in an attempt to “recreate” the missed opportunity. What you tend to see is a pessimistic view, later being exchanged for a bullish outlook. This dynamic was evident to anyone paying attention to BlackRock’s behavior over the past five years. However, there are more admirable ways of recreating an opportunity, and it’s achieved via the tool of leverage.

The following example was drafted using the figures when DOT was trading at approximately $7.70. The market has since retraced quite significantly. However, the ideas and principles remain the same. Say, for example, I only had enough capital to pick up 25 DOT. I had missed the $4 range and now had to pay significantly more to acquire a bag of DOT. However, with the use of leverage, I can, not only gain exposure to DOT at approximately $1.80 per coin but eventually own the coins as well.

Let’s look at how this becomes possible. Instead of simply buying 25 DOT, I decide to open a DOT trade using 4X leverage. Essentially, this gives me exposure to 100 DOT instead of a mere 25. Not only that, but each DOT costs me less than $2. However, I don’t own the DOT… not yet anyway. Simply hodling my DOT position from the $7 range to the $21 range is all that is required. Remember, DOT’s previous cycle peak was more than $55.

Allowing the science of mathematics and compounding to take the lead creates a phenomenal outcome. The capital created during this period of compounding growth seals the deal. The capital gained by selling this position at approximately $21, together with the margin is now able to purchase 100 DOT at the current price of $21. Essentially, the capital that could only acquire 25 DOT has now acquired 100 DOT. That being said, such a sweet deal doesn’t come void of risk.

Final Thoughts

Risk management plays a key role in such a strategy, and inexperienced traders should rather work towards gaining experience (especially with leverage) before attempting a similar strategy. Remember, leverage works against you, as well as in your favor. It all depends on what the market decides to throw at you. The creative use of leverage can however produce some pretty amazing results, provided, you handle it responsibly.

Disclaimer

First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.

This article was first published on Sapphire Crypto.