Gate.io is one of the few exchanges that offer leveraged tokens so clients could trade with more power even with limited funds. How does it work?
One of the many crypto products that are quite popular these days is leveraged tokens. If you are searching for a leveraged product that doesn't involve margin calls and liquidation risks, these tokens can be a great choice for you. They are able to offer high performances, particularly during strong trending markets due to the daily automatic rebalancing and compounding effect.
Leveraged tokens are only available in certain exchanges. In this article, we will be focusing on leveraged tokens offered by Gate.io. We'll see what they offer and how to use the tokens to maximize your portfolio gains. But before we start, let's get to know the essential stuff about leveraged tokens in the crypto space.
What are Leveraged Tokens?
As the name suggests, leveraged tokens are a type of ERC-20 tokens that offer leverage to their holders. By using these tokens, you can automatically gain a leveraged position, but unlike traditional leveraged positions in margin trading, you don't need to put up any collateral. Therefore, it offers a very convenient way to gain leverage without having to worry about margin calls, liquidation risks, and other risks associated with leveraged positions.
Leveraged tokens basically allow you to take a leveraged position in trading, meaning all your earnings or losses are multiplied. For example, a token called 3x Long Ethereum token (ETHBULL) can triple the results of an Ethereum investment. If the price of ETH increases by 1%, the price of ETHBULL increases by 3%. The same concept applies if the price of ETH decreases. With that being said, please note that while such a concept can multiply your profit, it can also make you lose more if the market decides to go against you.
Leveraged Tokens on Gate.io
Gate.io is a well-known crypto exchange that offers various crypto-related products, including leveraged tokens. According to Gate.io's website, there are over 200 ETF leveraged tokens that you can choose currently on the platform.
Leverage tokens essentially correspond to Gate.io's perpetual contracts, so you can easily trade them on the spot market just like any other products. The price of leveraged tokens also moves along with price changes in the perpetual contract market, and the leverage level moves up and down accordingly.
There are two types of ETF leveraged tokens on Gate.io, namely:
- 3L: 3-time leveraged long bullish token. Example: BTC3L is the 3-time leveraged long bullish token for Bitcoin.
- 3S: 3-time leveraged short bearish token. Example: BTC3S is the 3-time leveraged short bearish token for Bitcoin.
Typically, leveraged token transactions involve several types of fees, including handling fees, subscription and redemption fees, and management fees. However, at Gate.io, users only need to pay daily management fees of 0.1%, which already includes all costs including contract market handling fees, funding rates, and loss of open market spreads. Management fees are collected from management funds and not directly charged to the user's trades.
The Daily Rebalancing Mechanism
The rebalancing mechanism aims to adjust the position of the contract of the leveraged tokens in order to maintain the fixed leverage rate. Basically, the exchange needs to rebalance positions every day in order to ensure that the token is always at the right leverage level. This method is important to reduce the risk of liquidation and hedge losses incurred by heavy market fluctuations.
However, it's important to note that while rebalancing can give positive effects of compounding during trending periods, it can also increase the negative effects during volatile times. Also, since rebalancing involves adjusting exposure regularly, it may result in additional transactional costs for the users.
At Gate.io, there are two rebalancing mechanisms used for different market situations.
1. For 3X Leveraged ETF Products
- Irregular rebalancing: If the real-time leverage goes up and exceeds 3, the rebalancing mechanism will be triggered and the leverage ratio will be adjusted to 2.3.
- Regular rebalancing: Under normal circumstances, the rebalancing mechanism takes place at 00.00 UTC+8 every day. If the real-time leverage ratio goes below 1.8 or above 3, or the fluctuation rate exceeds 1%, the leverage ratio will be adjusted to 2.3.
2. For 5X Leveraged ETF Products
- Irregular rebalancing: If the real-time leverage goes up and exceeds 7, the rebalancing mechanism will be triggered and the leverage ratio will be adjusted to 5.
- Regular rebalancing: Under normal circumstances, the rebalancing mechanism takes place at 00.00 UTC+8 every day. If the real-time leverage ratio goes below 3.5 or above 7, or the fluctuation rate exceeds 1%, the leverage ratio will be adjusted to 5.
Pros and Cons of Trading Leveraged Tokens
Many people invest in leveraged tokens and end up losing more money than they anticipated because they don't fully understand the risks involved in such trades. Just like any other tradable products, leveraged tokens also come with their own benefits and downsides, so please consider the following factors before deciding to invest in one.
- Easy to start with. Most leveraged trading methods require a deep understanding of the market and complex management, but this is not the case with leveraged tokens. With leveraged tokens, any trader can open an intraday leveraged position simply by buying and holding the tokens. The leverage will be applied to the position automatically. If the investor wants to close the trade, they simply need to sell the tokens.
- No margin or collateral needed. There is no need to pledge some money as collateral to open a leveraged position. You also don't need to add more money if the price goes down or close if the price goes up thanks to the rebalancing mechanism. This also means that there is no need to worry about getting margin calls if your position suddenly goes downhill.
- Free from liquidation risks. Even though leveraged tokens are featured with leverage, they are still essentially token pairs on the spot market. Therefore, no matter how the price of the corresponding token changes, you will not get any liquidation. And if you get considerable losses, you may trigger the automatic position reduction mechanism instead of stop loss. This way, you can bear less loss and generate more profits from your trades.
- High Risk. Although leveraged tokens have relatively lower liquidation risks compared to other derivative products, it doesn't mean that liquidation couldn't happen when the market is extremely rough. Apart from that, leveraged tokens are considered high risk due to the multiplication factor. Both your profits and losses can be magnified, so you need to watch out for unprofitable market conditions.
- Not fit for long-term investment. Leveraged tokens are rebalanced daily, so they are not a great investment for the long term. Because of the position adjustment system, the risk of holding the tokens for a long time is considerably high. The longer you hold the token, the greater the volatility and friction costs.
- Additional management fees. Trading with leveraged tokens means that you need to pay additional management fees to the service provider. While the fee amount may sound small because they're daily rates, consider how much it would cost over the course of a year or two.
- Volatility decay. Last but certainly not least, you can suffer from volatility decay, which is basically the negative impact of volatile markets. The problem is that such an impact can turn out to be much worse if you are trading with a leveraged token. Even with small up-and-down price movements, volatility decay can significantly damage your investment.
How to Trade Leveraged Tokens on Gate.io
Trading leveraged tokens on Gate.io is very easy and straightforward. You can do so either by using a computer or mobile phone app. If you choose the latter, here are the steps that you should follow:
- Install the Gate.io mobile app from your Play Store and launch it. Log in with your Gate.io UID.
- Click the "Trade" button on the bottom of the screen to open the spot trading page.
- Select "ETF" on the side menu to see the complete list of available leveraged tokens.
- Alternatively, you can type in the name of the token that you want to trade with. Then, click the token's name to proceed.
- The next page will show you the token details. You'll see the order book on the right side of the screen, which displays the real-time prices from taker and giver.
- In order to see the token's price trend in real-time, tap on the Candlestick button on the top right or "Charts" on the bottom. The red and green candlesticks represent the ups and downs of the prices at a certain time. Meanwhile, the purple line represents the real-time trend of the corresponding token spot.
- To open a trade in Gate.io, look at the left side and choose your preferred order type (limit order, conditional order, or time condition). Specify the amount that you want to buy/sell as well as other details, then click "Buy" or "Sell".
- Once you're done, you'll see a small pop-up containing the details of your transaction. Make sure everything's correct and click "OK".
- Enter your password to place the order. You can find your order by clicking the "Orders" button on the side menu. Open the dropdown menu to find your order based on the order type.
- After clicking the order type, you can see the details of your order. The order percentage refers to the trade amount completed, which can help you calculate how much of the proportion you have bought or sold.
- Once the order is completed, it will appear in your trade history with all the information.
- If you want to check your leveraged token assets, simply click the "Spot Account" tab under the "Wallet" tab.
- You will see all of your spot and leveraged assets. Click on the asset to see the amount you own, the price of the token, and how much profit you got that day.
The Bottom Line
We can see that leveraged tokens can be a brilliant way to earn higher profits if you know how to use them properly. Gate.io offers easy access to leveraged tokens with relatively low fees and minimal requirements.
However, keep in mind that almost all crypto investments are risky to a certain extent. Leveraged tokens in particular are categorized as high-risk products due to the use of leverage, so they are more suitable for experienced traders. If you are considering buying and trading with leveraged tokens, make sure that you understand how it works as well as the risks involved. Understand also how the rebalancing mechanism works on the platform that you're planning to use.
If you're more of a passive investor who prefer conservative risks, Gate.io provides a crypto lending feature that may just fit your needs. Take a look at it further in Beginner's Guide to Gate.io Crypto Lending and P2P Loan.
Dec 25 2022
What is the real purpose of the rebalancing mechanism?
Jan 11 2023
Leveraged tokens are designed to provide exposure to an underlying asset, such as a cryptocurrency or commodity, with a specified level of leverage. The rebalancing mechanism helps to ensure that the leveraged token maintains its target leverage ratio by periodically adjusting the allocation of the underlying assets in the token. This can involve buying or selling the underlying assets in order to bring the leverage ratio back to the target level. It's important to note that leveraged tokens involve a high degree of risk and can be highly volatile. They are not suitable for all investors, and it is important to carefully consider the risks before deciding to invest in them. You can also read it here:
Dec 28 2022
Are there other platforms that offer leveraged tokens?
Jan 30 2023
Simba: Leveraged tokens have gained popularity in recent years as a way for traders to amplify their exposure to the crypto market with limited capital. Here are a few platforms that offer leveraged tokens:
But you also have to be careful, because there are also platforms that provide token leverage that are no longer prospective, such as FTX and Kraken. The point is, don't put large funds directly on 1 platform.
Jan 5 2023
What is the best leveraged token to trade right now?
Jan 30 2023
Honestly, It is almost impossible to determine the best leveraged token to trade at any given moment, as the market is highly dynamic and subject to rapid changes. The value of leveraged tokens is heavily influenced by the underlying asset's price movements, as well as the level of leverage and margin requirements.
Additionally, the performance of leveraged tokens can be affected by various factors such as market conditions, volatility, and liquidity, which can change rapidly and unpredictably. As a result, leveraged tokens can be highly speculative and risky investments. Based on gate.io data, here's 3 Top Leveraged Token Coins & Tokens by Market Cap:
do take notes, instead of focusing on finding the "best" leveraged token, it is important to conduct thorough research, understand the risks involved, and develop a well-thought-out investment strategy that aligns with your financial goals and risk tolerance.
Jan 10 2023
Why are leveraged tokens so popular?
Jan 30 2023
Mercibeau: Been several months trying leveraged tokens. In my opinion, leveraged tokens have become popular among traders and investors due to several reasons:
1. It offers an opportunity to amplified returns when you compared it to holding the underlying asset directly.
2. It's simpler and more convenient way to get leveraged exposure to an asset without having to physically own the asset or go through the process of borrowing.
3. Leveraged tokens have lower barriers to entry compared to traditional leveraged trading, so it's accessible to a wider range of investors.
4. The liquidity is quite high, making it easier for traders to enter and exit positions quickly.
That's all based on my experience. Maybe others found it differently.
Jan 15 2023
Does Gate.io accepts clients from Africa?