Difference between Bithumb leverage and contract

Bithumb Leverage Trading uses borrowed funds to amplify positions, while Contract Trading involves perpetual contracts that directly represent the underlying asset.

Nov 08, 2024 at 05:58 am

Difference between Bithumb Leverage and Contract

Bithumb offers two distinct trading products: leverage trading and contract trading. While both products involve the use of leverage, they differ significantly in their underlying mechanisms, risk profiles, and suitability for different trading strategies.

Overview of Bithumb Leverage Trading

• Definition: Leverage trading on Bithumb allows traders to amplify their trading positions by borrowing funds from the exchange.
• Leverage: Traders can leverage their positions up to a maximum of 10x.
• Margin Call: If the trader's position moves against them and their account equity falls below the required margin level, a margin call is triggered. This forces the trader to deposit additional funds or close their position to avoid liquidation.
• Fees: Leverage trading incurs interest charges based on the borrowed amount and the duration of the trade.
• Suitability: Leverage trading is suitable for short-term, speculative trading strategies with high risk tolerance.

Overview of Bithumb Contract Trading

• Definition: Contract trading on Bithumb involves trading perpetual contracts, which are standardized contracts that represent an underlying asset such as cryptocurrency.
• Leverage: Traders can leverage their contracts up to a maximum of 125x.
• Liquidation: If the trader's position moves against them and their account balance falls below the required margin level, their position is automatically liquidated.
• Fees: Contract trading incurs trading fees and funding fees, which are paid on a daily basis to the counterparty in the contract.
• Suitability: Contract trading is suitable for more experienced traders with a high risk tolerance who are comfortable with complex trading mechanisms.

Key Differences Between Leverage and Contract Trading

1. Underlying Asset: Leverage trading involves borrowing funds to amplify positions on the underlying asset, while contract trading involves trading contracts that represent the underlying asset directly.
2. Leverage: Contract trading typically offers higher leverage than leverage trading, allowing traders to amplify their positions more significantly.
3. Risk: Contract trading involves a higher risk than leverage trading due to the potential for automatic liquidation.
4. Fees: Contract trading incurs trading and funding fees, while leverage trading primarily incurs interest charges.
5. Suitability: Leverage trading is more suitable for shorter-term, speculative trading, while contract trading is more suitable for experienced traders with a high risk tolerance.

Choosing Between Leverage and Contract Trading

The choice between leverage trading and contract trading depends on the trader's individual circumstances, risk tolerance, and trading strategy. If the trader prioritizes capital preservation and is comfortable with slower, steady returns, leverage trading may be a more appropriate choice. If the trader is comfortable with higher risk and seeks greater earning potential, contract trading may be a better option.

It is crucial to thoroughly understand the mechanics and risk profiles of both leverage trading and contract trading before engaging in these activities. Traders should always conduct thorough research, consider their own risk appetite, and seek professional advice when necessary.