The difference between Upbit leverage and contract

Upbit's leverage trading offers lower leverage ratios (up to 5x) compared to its contract trading platform, Derivative, which provides maximum leverage ratios of up to 20x.

Nov 13, 2024 at 09:16 am

The Discernible Differences Between Upbit Leverage and Contract

Delving into the realm of cryptocurrency trading unveils a myriad of avenues to amplify profit potential, and two such prominent instruments are leverage and contract trading. Upbit, one of the leading cryptocurrency exchanges, offers both leverage and contract trading options. However, discerning the key differences between these two approaches is paramount for informed decision-making.

Leverage Trading

1. Magnified Returns: Leverage trading allows traders to multiply their trading capital by borrowing funds from the exchange. This magnifies both potential profits and losses.
2. Margin Call Risk: Margin trading involves pledging collateral (typically the base asset) to secure the borrowed funds. If the market moves against the trader's position, causing the collateral value to fall below a certain threshold, a margin call may be issued, requiring the trader to deposit additional funds or face liquidation.
3. Limited Trading Pairs: Upbit offers leverage trading for a limited number of trading pairs, typically major cryptocurrencies like Bitcoin and Ethereum.

Contract Trading

1. Fixed Expiry Date: Contract trading involves agreements with pre-determined expiry dates. Traders speculate on the future price of an underlying asset, aiming to profit from price movements.
2. No Collateral Required: Unlike leverage trading, contract trading does not necessitate any collateral. Instead, traders commit only the amount they are willing to risk on each contract.
3. Higher Leverage: Contract trading typically offers higher leverage ratios compared to leverage trading, allowing traders to control larger positions with less capital.
4. Settlement in Underlying Asset: When a contract expires, it settles in the underlying asset, either physically (delivering the asset) or in cash (receiving or paying the difference between the contract price and the underlying asset's price).

Choosing the Right Option

The choice between leverage and contract trading hinges on several factors:

1. Risk Appetite: Leverage and contract trading amplify both profits and losses, making them unsuitable for conservative traders.
2. Trading Style: Leverage trading suits short-term traders seeking high-frequency profit-taking. Contract trading is more suited for longer-term speculators.
3. Market Conditions: Leverage and contract trading can be beneficial in volatile markets, but they can also exacerbate losses during market downturns.

Upbit Leverage vs. Contract Trading

Beyond the fundamental differences between leverage and contract trading, the specific offerings on Upbit further distinguish these two options:

1. Leverage Trading on Upbit: Upbit's leverage trading offers maximum leverage ratios of 5x for perpetual contracts and 3.33x for futures contracts.
2. Contract Trading on Upbit: Upbit's contract trading platform, dubbed Derivative, offers perpetual contracts with maximum leverage ratios of up to 20x.

In Summary

Leverage and contract trading on Upbit present distinct approaches to amplifying trading potential, each with its own set of advantages and risks. Understanding the nuances between these two instruments empowers traders to make informed decisions aligned with their trading goals and risk tolerance.