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Leveraged Tokens: Avoid Risks with Binance


Leveraged Tokens are widely used in trading, but they contain certain risks that you should avoid. On its blog, the Binance firm published 4 recommendations to follow so as not to suffer losses that you may regret.

It should be noted that Binance’s leveraged tokens and LTs have important differences. The most outstanding is that the leverage of these is variable, unlike the first ones that are constant.

In simple words, the post explains, the 3x BTC up token, for example, means that its value is three times that of Bitcoin. When there are losses, that’s when it gets complicated for investors. Therefore, the recommendations to avoid risks with leveraged tokens should be followed.

Avoid immersing yourself in big risks with leveraged tokens

Before going on to analyze Binance’s 4 recommendations to avoid risks with leveraged tokens, it is important to see the alternative to these. As mentioned above, Binance LTs (BLVTs) have the great advantage that their leverage is variable and ranges from 1.3x to 3x, allowing for more room for maneuver.

This is not to say that traditional leveraged tokens should be discontinued due to the fact that they are risky. On the contrary, proper management can mean a lot of profit for an investment.

On the other hand, if precautions are not taken, the consequences can be regrettable. The exchange Binance ensures that, although there are many measures that can be taken to avoid risks with leveraged tokens, there are 4 that are fundamental.

Maintain LTs for the long term?

Given the appearance of amplifying investment, leveraged tokens seem like a very good long-term investment. However, Binance considers that this is not a good idea.

This depends on whether the advance token corresponds to a volatile or non-volatile cryptocurrency. In the first case, sudden changes can damage an investment in the long term and cause investment losses.

“Long-term performance of leveraged tokens is imperative because of how the compounding effect works differently”explains the post. This also applies to Binance tokens, which themselves do not recommend holding for long periods.

Beware of the consequences of volatility

The second of Binance’s recommendations to avoid risks when using advanced tokens is not to ignore volatility, something that usually happens very frequently.

It is true that in periods of rallies of the underlying currencies of the leveraged tokens, the gains are usually fabulous and this is part of the nature of them. However, when there are breaks in trends, accumulated losses appear.

For this reason, Binance cautions that before investing in LTs, it is important to keep an eye on the state of volatility.

Leveraged tokens can bring great successes, but they also carry risks, knowing how to avoid them can be key for investors.
Knowing the regular rebalancing of leveraged tokens can help you avoid great risks when investing. Source:

The impact of regular rebalancing

Again, related to volatility, regular rebalancing must be handled with great care. It turns out that when the underlying cryptocurrency the token is anchored to exhibits volatility, the token follows.

In other words, it rebalances itself. This results in that if an investment lasts more than a day in the middle of a volatile situation, the rebalancing can affect the original investment, facing the investor great possibilities of losses.

In this sense, avoiding risks with leveraged tokens can be summed up as being vigilant with volatility. Since this is related to practically all the risks that Binance advises to avoid.

Never let the losers run

According to Binance, this is one of the “classic” mistakes related to leveraged tokens and explains that one of the ways to avoid these risks is not to bet on the losers waiting for a “market correction”.

According to the post, this is a very common failure of novice traders, who cling to losers while waiting for the market to turn in their favor.

It is important to note that leveraged tokens are easy to use and, with good management, you can get a lot out of them. But that doesn’t eliminate the chances of having a hard time if you ignore the recommendations of experts in the area.

Finally, we must clarify that this CryptoTrend article does not have any commercial or advisory purpose to invest. It is exclusively informative material.

Data to take into consideration

  • The leveraged tokens or LT, are very easy to use in trading, they can also report significant profits.
  • On the other hand, careless handling of leveraged tokens can bring risks that can be avoided by following Binance’s recommendations.
  • The LT have an equivalent value in a digital currency, when it rises or falls, the leveraged token usually reacts and balances with the same trend.
  • Binance has its own LT, the BLVT, which has a wide spectrum for use in trading.

Reliable sources

The information in this content has been extracted from reliable sources that are detailed below:

1- Professional content management by the authors of CriptoTendencia.
2- External sources: Official Binance site.

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