Gate.io 博客 Spot Trading VS Leveraged Token Trading

Spot Trading VS Leveraged Token Trading

02月23日 11:05

To simplify, the only difference between traditional tokens and leveraged tokens is that leveraged tokens have leveraged property.

Definition
Spot: Spot trading refers to crypto-to-crypto trading, using one cryptocurrency to buy another. The trading rule is to complete the matchmaking according to the price priority and time priority order, settling exchanges between crypto assets.
Leveraged token trading：Leveraged tokens are traded in line with the spot trading methods, long or short positions can be obtained simply by purchasing the corresponding ETF tokens. A leveraged ETF, essentially, is a fund in shares that is pegged to the return rate of an underlying asset.

Similarities:
1. Easy to operate: they are both tokens to trade. Neither loaning nor redemption is required.
2. The value of a leveraged ETF product is calculated in USDT and is normally spot traded.

Differences:
1. Leveraged tokens cannot be withdrawn or deposited while spot tokens can.
2. Leveraged token only costs 0.1% daily management fee, which includes contract market fees and funding rates, as well as loss of open market spreads, etc. No margin will be required.
3. Extra risk and extra leveraged gain: For leveraged tokens, investors are able to enjoy the yield of underlying crypto assets with a certain multiplier effect by trading the corresponding leveraged ETF product which is protected from liquidation risks via control measures taken by the fund management agent. But at the same time, the risk of loss will be multiplied either compared to spot tokens.
4. Automatically Compounded Interest: When there is a one-sided rise on the market, 3X leveraged tokens can generate more profits than conventional margin trading with 3X leverage. The reason for this is that the profits made are automatically used to purchase more leveraged tokens to generate more profits. When the market falls, liquidation will not happen and automatic position reduction will be triggered instead to stop loss.
5. Rebalance：When leveraged tokens follow up the profit and loss and adjust the leverage back to the targeted leverage every day, if profits are made, positions will be opened; if there are losses, positions will be reduced. No collateral is needed for leveraged token trading. Through simple buying and selling of leveraged tokens, users can generate leveraged gains, just as in margin trading. The position of spot tokens is totally up to investors' operation.
6. LOGO

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

*Note: 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.
The cryptocurrency market is volatile. 3X and 5X leveraged ETF products will increase price volatility and bring greater risks of loss. Please be sure to understand the risks in detail and trade wisely. Because of regular and irregular position adjustments, the rise and fall over a certain period of time is not always the targeted leverage. ETF products are hedged through perpetual contracts. If profits are made, positions will be opened; if there are losses, positions will be reduced. ETF products follow up the profit and loss while adjusting the leverage back to the targeted leverage on a daily basis. Friction costs can be quite considerable in a fluctuating market. Due to the position adjustment mechanism and position holding costs, leveraged ETF products are not a good long-term investment. Large price fluctuations and high risks are characteristics of ETF products. Please invest carefully.

About Gate.io
Gate.io allows blockchain enthusiasts to trade and store assets in over 1200 of the leading cryptocurrencies for over 10 million users from over 190 countries. The exchange offers spot, margin, futures, and contract trading in addition to DeFi products through Hipo DeFi, custodial services through Wallet.io, investments through Gate Labs, and its dedicated GateChain platform. The company also offers a wholly integrated suite of products such as its Startup IEO platform, NFT Magic Box marketplace, crypto loans, and more.

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