Gate.io Blog Things to Know Before You Invest In Leveraged Tokens

Things to Know Before You Invest In Leveraged Tokens

02 March 12:23

There are more than 200 different leveraged tokens on Gate.io. Among so many tokens, users may have questions like which one to invest in, and how long they should invest for. People often buy leveraged tokens without fully understanding how it works. To avoid an investment you might regret, there are several things to know before you buy. This article is to help you figure out before you invest and choose leveraged tokens.

Higher profit, higher risks

In the world of cryptocurrencies, leveraged tokens give you a leveraged position in trading, meaning that your earnings and losses are multiplied. Leveraged tokens are at higher risk than other spot markets and potentially more volatile. These tokens will perform differently than regular leveraged exposure. With their rebalancing process, the target leverage will be achieved each day but not necessarily sustained over the long term.

Daily Rebalancing

Rebalancing is the way that leveraged tokens are programmed to automatically increase or decrease their positions to maintain the target leverage and avoid liquidation. The rebalance takes place daily, which means that at a set time they buy or sell to increase or decrease their leverage. Tokens can also rebalance automatically if there's a dramatic change in the asset's price. It's important to understand how and when your token might rebalance, as it works differently on different exchanges.

Not a good fit for long-term investment

Leveraged tokens are only fit for professional investors to use for risk hedging or short-term one-sided market investment. They are not fit for medium and long-term investments. Because of the existence of the position adjustment mechanism, the risk of holding leveraged tokens for a long time is extremely high. The longer the holding time, the greater the volatility and friction costs.

All in all, we have the following suggestions for all our leveraged token investors:

First, use them for short-term trading.
Second, focus on markets when they are sharply trending.
Third, do your own research. Only you can fully understand how they work so that you can use tools the right way. Leveraged tokens can be very powerful for short-term trading but you need to be cautious when holding these tokens over a long period of time.

Where to trade?

Spot trading:

APP：homepage - trade - choose the token
Website： Homepage - Trade - Spot Trading and choose the token

Leveraged trading:

APP：homepage - markets - ETF - choose the token
Website： https://www.gate.io/etf#more

Important Note:

Make sure you properly understand leveraged tokens before you trade them because of their high-risk nature.

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