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A variety of financial instruments can help you gain leverage when trading crypto, but none of them are as simple as a leveraged token. This article helps explain the concept and offers advice on avoiding common mistakes when trading leveraged tokens in the crypto market.
Leveraged tokens are a financial product that tracks the price movements of an underlying asset. The tracking is done using derivative instruments to ultimately multiply your earnings.
Leveraged tokens are becoming popular because they let you trade with leverage without worrying about margin calls, liquidation risk and loans from your broker. In addition, you can trade them as easily as other coins.
3X Long Ethereum Token (ETH3L) is an example of a leveraged token. The "3X" indicates the leverage, which means that your assets are multiplied by three if ETH3L increases in value. However, it's a double-edged sword because you can also lose value quickly as well. For every 1% drop in ETH, ETH3L also decreases by 3%.