Everything You Need to Know About KuCoin Leveraged Tokens

2023/11/02 06:16:15

How can you leverage greater benefits with lower costs in the bull market of the crypto industry?

Many people think contract trading and leveraged trading make for good choices, but high returns come with high risks. Is there a product in the market suitable for investors with a low-risk appetite that also provides leverage to amplify their returns?

The Leveraged Token (ETF) on KuCoin is a product with such features, which not only helps to magnify your profit but also protects you from bearing the risk of being liquidated.

Welcome to the world of KuCoin leveraged tokens, a financial product that allows you to amplify your profits without the risks associated with traditional margin trading. In this comprehensive guide, we will explore what leveraged tokens are, how they work on the KuCoin platform, their advantages, and the necessary precautions traders should take when engaging with them. Whether you're a beginner or an experienced trader, this article will equip you with the knowledge to trade leveraged tokens confidently.

What Are KuCoin Leveraged Tokens?

KuCoin leveraged tokens are assets traded on the KuCoin spot market, similar to conventional cryptocurrencies. These tokens leverage profits by providing exposure to an underlying asset while eliminating the need for collateral or maintaining margin requirements. They enable you to take leveraged positions without worrying about liquidation risks.

How Do Leveraged Tokens Work on KuCoin?

KuCoin leveraged tokens work by automatically rebalancing and adjusting their leverage ratio by up to three times ( 3 times long or 3 times short) in response to price fluctuations and volatility.

Leveraged tokens track the performance of perpetual contracts and aim to offer amplified returns based on the chosen leverage. The tokens automatically adjust their positions to maintain the desired leverage, allowing traders to benefit from leveraged trading without the complexities and risks associated with margin trading.

KuCoin’s leveraged tokens undergo rebalancing, where the position of the leveraged tokens contract gets adjusted to maintain the rate of leverage. KuCoin rebalances positions on a daily basis between 23:30 and 23:45 UTC to ensure that the ratio of the leverage position does not deviate from the agreed leverage rate.

Let's consider an example involving ETH. When the price of ETH increases by 1%, ETH3L (a 3x bullish leveraged token on KuCoin) increases by 3%. Similarly, ETH3S (a 3x bearish leveraged token) would decrease by 3% if the price of ETH drops by 1%. These leveraged tokens provide traders with amplified returns compared to traditional spot trading, making them an attractive option for profit-maximizing strategies.

KuCoin Leveraged Tokens (ETF) vs. KuCoin Spot Market

KuCoin leveraged tokens and KuCoin spot trading are two different trading options offered on the KuCoin exchange. Here are the main differences between KuCoin’s leveraged tokens and spot trading:

Exposure to Price Movements

In KuCoin spot trading, you directly buy or sell the underlying crypto asset at the current market price. In the spot market, you have full exposure to the price movements of the asset.

On the other hand, KuCoin leveraged tokens provide leveraged exposure to the underlying asset’s price movements, offering users amplified returns based on the chosen leverage ratio.

Complexity

KuCoin spot trading is generally simpler and more straightforward since it involves buying and selling assets at the current market price. On the contrary, trading leveraged tokens involves understanding how they are rebalanced and their mechanisms to maintain the chosen leverage ratio, which can be more complex for some traders.

Risk and Leverage

Spot trading carries the risk of potential losses if the price of the asset drops. However, trading leveraged tokens introduces additional leverage risks if the assets move against your position.

While leverage can amplify profits, it can also increase losses if the market moves in the opposite direction of your position. Trading leveraged tokens is better suited in a one-sided market (either uptrend or downtrend). A ranging market or high volatility conditions could eat your positions and reduce your profit margins.

Both spot trading and leveraged tokens offer unique trading opportunities. Spot trading is suitable if you are looking for direct exposure to the underlying assets. On the other hand, leveraged tokens can offer potentially amplified returns if you are interested in leveraged positions without the complexities of managing collateral or margin requirements.

Learn all about how to trade on the KuCoin Spot Market.

Key Features of KuCoin Leveraged Tokens (ETF)

KuCoin leveraged tokens (ETF) have some key features that differentiate them from traditional tokens and make them attractive to traders looking for leveraged exposure to the crypto market:

1. Automatic Rebalancing: KuCoin leveraged tokens automatically rebalance their positions to maintain the desired leverage ratio. This means that in times of extreme volatility or price fluctuations, the leverage is automatically adjusted to prevent excessive losses or gains.

2. Leveraged Exposure: These tokens provide leveraged exposure to the price movements of underlying cryptos, which could amplify your potential profits or losses.

3. Elimination of Liquidation Risk: Unlike margin trading, where positions can be liquidated if the market moves against the trader, KuCoin leveraged tokens eliminate liquidation risk. You do not need to worry about maintaining sufficient collateral or being forced to close your positions due to price fluctuations. However, you still might have to bear intraday losses if the market fluctuates ups and downs.

4. Availability of Bullish and Bearish Tokens: KuCoin leveraged tokens are available in bullish (long) and bearish (short) variants. They let you take advantage of both upward and downward price movements in the crypto market. Be aware that leveraged tokens have higher profit potential in a one-sided market but are not suitable for holding for the long term due to their inbuilt rebalancing mechanism and management fees.

How to Trade Leveraged Tokens on KuCoin

Currently, KuCoin supports a wide variety of over 100 leveraged tokens. Trading leveraged tokens on KuCoin is a straightforward process. Follow these steps to get started:

Step 1. Create and Fund Your KuCoin Account

If you don't already have an account on KuCoin, you'll need to sign up and complete the registration process. Provide the required information and go through the necessary verification steps.

After creating an account, deposit funds into your KuCoin trading account. You can deposit cryptocurrencies or fiat currencies, depending on the available options on the platform.

Step 2. Visit the KuCoin Leveraged Tokens Trading Interface and Select Your Token

On KuCoin, find the trading interface for leveraged tokens. You will see this section under the Derivatives tab on the website.

Select the leveraged token you want to trade. Review each asset’s 24-hour change, net asset value (NAV), last price, and actual leverage. Click Trade on the token of your choice.

Step 3. Place Your Order

Enter your trading password to access the trading interface. Ensure that you have enabled leveraged trading on your KuCoin account.

Before finalizing the trade, carefully review your order details, including the quantity, leverage, and direction (long or short). Ensure that everything is accurate before confirming your trade. Select Buy or Sell, enter the price and quantity of the token you want, and confirm the transaction by clicking Buy/Sell.

Closing Thoughts

KuCoin Leveraged Tokens are an innovative crypto financial derivative. They have leverage features, zero margins, and come without the risk of forced liquidation. Trading leveraged tokens is suitable, especially if you desire a profit from market volatility without taking the risk of being liquidated.

However, as with any trading activity, it's essential to understand the associated risks and exercise proper risk management strategies. When dealing with leverage, you could amplify your gains but also losses if market direction goes against you.