In a nutshell, 100x leverage is a high leverage trading strategy where a trader borrows 100 times more funds than he currently has, in order to open new positions. This type of strategy comes with high potential returns, but also comes with high risks.
Note: Before diving into 100x leverage trading, it is important to have a clear understanding of what leverage and margin trading is and how it works.
Many believe that trading using high leverage is the key to success. Let’s take a look at an example of the 100x leverage potential and find out if it’s really the holy grail of trading or not.
Meet Peter. On a sunny summer day, Peter is seriously considering investing $1000 in Tesla stock using 100x leverage. This means that for every dollar he invests, the broker will give him $100 to trade with. With this leverage, Peter will be able to open a long position worth $100,000 with just $1000.
Now let’s consider the potential gains and risks that Peter is exposing himself when trading with 100x leverage.
Potential Gains Using 100X Leverage
- If Tesla’s stock price increases by 1%, Peter will bank $1000, meaning that he will double his account balance.
- If Tesla’s stock price increases by 10%, Peter will make $10,000 profit which is a significant return on his 1000$ initial investment.
In case Tesla’s price increases 50% like in the example below, from 16 January 2023 to 01 February 2023, Peter’s account would be on fire with a profit of $50,000 in just 17 days (not taking into account fees).
Quite impressive gains, but there is a catch to this method. Here are the risks to consider before even thinking about big gains from high leverage trading.
Potential Risks Using 100X Leverage
- If Tesla’s stock price decreases by 1%, Peter’s position would be liquidated and his $1000 would be gone.
In the example above, this would not happen because the price never dropped below the entry price. But if Peter would enter this trade on 02 January 2023, the price first dropped by -17.87% before going up, meaning that Peter’s position would be liquidated the next day.
As you can see from the examples above, high leverage trading can offer the potential for significant gains, but it comes with a heavy cost. Even a small price movement in the wrong direction could result in a margin call, where the broker demands additional funds to maintain the position or liquidates the position entirely. Trading with 100x leverage is not a strategy that should be taken lightly, as it can quickly turn into gambling instead of actual trading.
Traders who use high leverage strategies are often motivated by fake advertising of quick profits and this is a big issue because it can lead to overconfidence and overtrading. Combined with emotional decision-making it will lead to bad trading decisions and significant losses most of the time.
Alternative Trading Strategies With Lower Risk
Long-term Trading
Long-term trading means buying and selling assets for an extended period of time. This also means using less leverage and counting with profits over the long-term too. This strategy can be applied to any asset class be it stocks, crypto or forex.
One of the key advantages of trading long-term is that you will not be affected by short-term market volatility, which is the main killer of trading with high leverage.
Having a long-term approach to trading requires less monitoring and decision making. This will help you keep your emotions out of your trading and allow you to be more focused on your goals. You will have more time to do your research, study fundamental and technical analysis and make informed decisions.
Ultimately, the key to success in long-term trading is patience, discipline, and a long-term perspective.
Trading Without Leverage
If you’re a beginner, trading without leverage can be a great option to start. Trading without leverage means you use only the funds that you have in your account, without borrowing any additional funds from your broker. This is a more conservative approach, which will not result in high gains right away, but it’s enough to practice and once you achieve consistent profits, you can easily increase your leverage and gain more.
Another advantage of trading without leverage is that it can help you to develop a more disciplined approach to trading. Losing is part of trading, even professional traders have losing trades. With 100x leverage, it’s just a matter of time until a losing streak will hit you and all your funds will be gone. Without using leverage, your losses will be small and you will be able to learn and improve much easier over time.
Portfolio Diversification
The idea behind portfolio diversification is to reduce the overall risk by investing in different asset classes. The goal of diversification is to minimize the impact of any single trade on your portfolio.
According to Dalio, the founder of the world’s largest hedge fund, a properly diversified portfolio can provide investors with the best possible returns for a given level of risk. In his book “Principles: Life and Work,” he calls diversification the “Holy Grail of Investing.”
Conclusion
In the end, choosing to trade with 100x leverage or with no leverage at all depends on how experienced you are. If you have a trading strategy with a high win rate, perfect risk management plan, entry and exit rules, then 100x leverage will get you rich very quickly.
But if you don’t have such a trading strategy, consider carefully the risks of using high leverage and do proper research before committing. The fact that more than 80% of traders lose their money is real.
Remember, trading is not a get-rich-quick scheme, and it’s not easy to be a successful trader without hard work. It requires patience, discipline, and a willingness to learn and adapt.
Disclaimer: All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual’s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circ*mstances, investment objectives, risk tolerance, and liquidity needs. This post does not constitute investment advice.
