Bybit leverage for beginners can be more difficult to understand than just spot trading with direct buying and selling crypto. But the great advantage of Bybit is that the platform is very friendly for beginners even regarding the advanced trading features with a clear interface and plenty of educational materials.
What Are Bybit Leveraged Tokens?
Bybit Leveraged Tokens are innovative financial products that offer a new way to invest in various crypto assets. Unlike traditional derivatives, these tokens come without the risks associated with margin and liquidation. This means that you can enjoy the benefits of leverage without worrying about your investment being wiped out if market conditions turn against you.
A leveraged token is a representation of a basket of perpetual contract positions. This means that when you invest in a leveraged token, you’re effectively investing in a pre-packaged portfolio of positions that are being traded as a single token. This offers a convenient and straightforward way to get exposure to your desired asset while leveraging your investment to potentially increase profits.
In short, Bybit Leveraged Tokens offer a safe and accessible way to invest in assets and reap the benefits of leverage, making them an attractive option for those who want to avoid liquidations.
Leveraged Tokens Explained
Leveraged tokens on Bybit can be easily found on the platform’s homepage under the “Trade” tab. These tokens work somewhat similarly to trading pairs available on the spot market. The main difference is in their notation, which consists of the cryptocurrency abbreviation followed by either “2L/3L” or “2S/3S”.
For example, if you want to trade a leveraged token for Bitcoin that gives you access to a 3x long position, it will be denoted as “BTC3L”. On the other hand, if you want to trade a leveraged token that allows you to short Bitcoin at 3x leverage, it will be represented as “BTC3S”.
The number in the name indicates the level of leverage. For instance, if it is “BTC2L,” it means that the leveraged token allows you to open a 2x long position on Bitcoin.
It’s crucial to remember that leveraged tokens come with amplified price fluctuations. If, for instance, you own “BTC3L” and the price of Bitcoin rises by just 1%, your asset will see a corresponding 3% increase.
Bybit Margin Trading vs Leverage Trading
The difference between leveraged tokens and regular margin trading positions lies in their nature. Leveraged tokens are considered assets and can be bought and sold on the leveraged token trading market at the user’s discretion. On the other hand, margin trading positions are more traditional and operate under different rules and regulations.
How to Trade Bybit Leveraged Tokens?
Bybit leveraged tokens can be traded in two ways:
- Buy & Sell
- Purchase & Redemption
Buy & Sell
Bybit Leveraged Tokens can be easily bought or sold on the spot market. For instance, if you want to trade BTC3L, you can simply go to the BTC3L/USDT spot market and either buy or sell the token. This process is quick and straightforward, making it accessible to a wide range of investors.
Purchase & Redemption
Leveraged Tokens can be purchased or redeemed based on the perpetual contract positions of the underlying assets in the bucket. This means that when you trade a leveraged token, it’s linked to the perpetual contracts of the assets it represents, allowing you to easily buy or redeem your investment.
Important Notes
- The price of a Leveraged Token on the spot market is determined by buying and selling behavior, causing a slight difference between the price and the Net Asset Value (NAV)
- Purchase & redemption is also based on the NAV
- A fee of 0.1% is charged in both cases
Bybit Leverage Limits and Fees
The fee structure for leveraged tokens is different from the regular Bybit leverage fees, you can learn more details here.
Bybit Leveraged Token trading incurs five types, and each is calculated with a different formula:
Trading fee 0.1%
Filled Order Quantity × Trading Fee Rate
Purchase fee 0.5%
Subscription Quantity × Subscription Price × Subscription Fee Rate
Redemption fee 0.5%
Redemption Quantity × Redemption Price × Redemption Fee Rate
Management fee 0.005%
Net Asset Value × Position Quantity × Daily Management Fee Rate
Funding fee
Position Value × Funding Rate
Benefits of Using Leveraged Tokens
There are several benefits of preferring leveraged tokens over regular leverage trading. Some of these include:
No Liquidation Risk
Leveraged Tokens continue to be traded on the spot market and offer protection from liquidation, even in the face of price fluctuations. This means that you can trade with confidence, knowing that your investment won’t vanish completely after a significant price fluctuation. That is also why the leverage offered is not usually higher than 3x or 5x.
However, if you are interested in Bybit 100x leverage, you will have to turn to traditional leverage trading.
Easy Trading
Trading Leveraged Tokens is a simple process that eliminates the complexities typically associated with regular leverage trading. You can easily buy or sell the token on the secondary market without having to worry about any complicated steps. It’s that simple!
Compound Yield
The leveraged tokens are equipped with a dynamic rebalancing mechanism, which helps manage risks and amplify profits.
Difference Between Leveraged Tokens and Regular Derivatives Trading
Understanding leverage ratios on Bybit and other differences between leveraged tokens and derivatives trading include – you can decide does it suits your trading experience and strategy:
- Margin requirement. Derivatives trading has a margin requirement, while leveraged tokens can be purchased from the spot market.
- Leverage Range. Derivatives trading has no fixed range, and for some assets, you can go as high as 125x for leverage. With derivatives, you will be offered a fixed leverage of 2x or 3x in most cases.
- Liquidation. With derivatives trading risk of liquidation is always there. However, leveraged tokens do not liquidate.
- Trading methods. Derivative trading deals with a trader opening a long or short position against a specific asset. Leveraged tokens are bought and sold on the spot market or can be purchased and redeemed.
- Investment Scenario/ Derivatives trading is a volatile market, while leveraged tokens are a one-sided market.
Risks of leveraged tokens on Bybit
Leveraged Tokens are intended for short-term investments and perform well in volatile market conditions. It’s recommended to fully understand the product before investing in Leveraged Tokens.
Also, all leveraged tokens come with a built-in decay feature, which can have a negative impact on your overall returns in a volatile market. To minimize these losses, Bybit’s leveraged tokens have a transparent rebalancing mechanism. This mechanism only triggers a rebalance when the actual leverage moves outside a specified range.
Conclusion
In conclusion, Bybit Leveraged Tokens are an innovative way to invest in various crypto assets that offer several benefits over traditional derivatives trading. With no risk of liquidation, easy trading processes, and a compound yield mechanism, these tokens provide a safe and accessible investment opportunity. Unlike traditional derivatives trading, leveraged tokens do not require a margin requirement and have a fixed leverage range of 2x or 3x.
With the ability to trade on the spot market and a dynamic rebalancing mechanism to manage risks, Bybit Leveraged Tokens are a suitable investment option for those who want to reap the benefits of leverage without the risks associated with traditional derivatives trading.
