The difference between AscendEX leverage and contracts

Understanding the distinctions between AscendEX leverage and contracts enables traders to optimize their trading strategies based on risk tolerance, trading objectives, and market conditions.

Nov 24, 2024 at 12:51 am

The Difference Between AscendEX Leverage and Contracts

AscendEX, a leading digital asset financial platform, offers a range of trading options to its users, including leverage and contracts. While both leverage and contracts can be used to amplify trading profits, they have distinct characteristics and risks. This article will delve into the differences between AscendEX leverage and contracts, providing traders with a comprehensive understanding to make informed trading decisions.

AscendEX Leverage

• Definition: Leverage refers to the practice of borrowing funds from a broker to increase the trading power of an investor.
• Mechanism: AscendEX offers leverage of up to 20x on a variety of spot and futures trading pairs. When using leverage, traders can open positions that are larger than their account balance, allowing them to potentially multiply their profits.
• Margin Requirements: Leverage trading requires traders to maintain a sufficient margin balance, which serves as collateral for the borrowed funds. The minimum margin requirement varies depending on the trading pair and leverage level used.
• Risks: Leverage magnifies both potential profits and losses. If the market moves against the trader's position, losses can be amplified, potentially wiping out the initial investment and additional funds. Traders should carefully consider their risk tolerance and manage their positions accordingly.
• Fees: AscendEX charges a daily financing fee on leverage positions, which is calculated based on the borrowed amount and the prevailing interest rate.

AscendEX Contracts

• Definition: Contracts, also known as perpetual contracts, are financial instruments that represent an agreement between two parties to buy or sell an underlying asset at a specified price on a future date.
• Mechanism: AscendEX contracts are perpetual, meaning they have no fixed expiration date. Traders can hold contracts indefinitely, speculating on the future price movements of the underlying asset.
• Funding Mechanism: Unlike leverage trading, contracts use a funding mechanism to ensure balance between long and short positions. Traders who hold long positions pay a funding fee to those who hold short positions, or vice versa, depending on the market condition.
• Margin Requirements: Contract trading requires traders to maintain a margin balance, similar to leverage trading. However, margin requirements can differ depending on the underlying asset and the leverage used.
• Risks: Contracts are inherently risky due to price volatility and margin requirements. Traders can experience significant losses if the market moves against their position or if they fail to maintain sufficient margin.
• Fees: AscendEX charges trading fees on contract trades, typically a maker-taker fee structure. Traders who provide liquidity (makers) receive rebates, while traders who take liquidity (takers) pay the fees.

Key Differences

• Underlying Asset: Leverage can be applied to spot trading of actual digital assets, while contracts are based on the future price movements of underlying cryptocurrencies.
• Borrowing: Leverage involves borrowing funds from AscendEX to increase trading power, while contracts do not require borrowing.
• Risk: Leverage amplifies both profits and losses, while contract risks are primarily determined by price fluctuations and margin management.
• Fees: Leverage trading incurs daily financing fees, while contract trading has trading fees and a funding mechanism.
• Ownership: Leverage positions represent ownership of the underlying assets, while contracts are speculative instruments.

Conclusion

AscendEX leverage and contracts offer distinct trading opportunities with varying risk and reward profiles. Traders should carefully assess their risk tolerance, trading goals, and market conditions before engaging in either form of trading. By understanding the key differences between leverage and contracts, traders can make informed decisions and tailor their trading strategies accordingly.