Leveraged tokens

Written by Admin · 1 min read >

To start trading Leveraged Tokens open an FTX account and receive a 5% fee discount.

What Are Leveraged Tokens?

Leveraged tokens are innovative ERC20 assets that can give you leveraged exposure to cryptocurrency markets, without all the nuts and bolts of managing a leveraged position.

For example, take ETHBULL, a 3x long ETH token.  For every 1% ETH goes up in a day, ETHBULL goes up 3%; for every 1% ETH goes down, ETHBULL goes down 3%.

How Do Leveraged Tokens Work?

Each leveraged token gets its price action by trading FTX perpetual futures. For instance, say that you want to create $100 of ETHBULL  To do so you send in $100, and the ETHBULL account on FTX buys $300 worth ofFTX perpetual futures. Thus, ETHBULL is now 3x long ETH.

You can also redeem leveraged tokens for their net asset value.  To do that, you can send your $100 of ETHBULL back to FTX, and redeem it.  This will destroy the token; cause the ETHBULL account to sell back the $300 worth of futures and credit your account with $100.

This creation and redemption mechanism is what ultimately enforces that the leveraged tokens are worth what they’re supposed to be.

Why Use Leveraged Tokens?

There are three reasons to use leveraged tokens.

Managing Risk

BULL/BEAR/HEDGE tokens will automatically reinvest profits into the underlying asset; so if your leveraged token position makes money, the tokens will automatically put on 3x leveraged positions with that.

Conversely, BULL/BEAR/HEDGE tokens will automatically reduce risk if they lose money.  If you put on a 3x long ETH position and over the course of a month ETH falls 33%, your position will be liquidated and you will have nothing left.  But if you instead buy ETHBULL, the leveraged token will automatically sell off some of its ETH as markets go down–likely avoiding liquidation so that it still has assets left even after a 33% down move.

HALF tokens are the opposite.  Because they’re only 1/2 leveraged, HALF tokens will sell off their underlying when it goes up and buy it back when it goes down.

Managing Margin 

You can buy leveraged tokens just like normal ERC20 tokens on a spot market.  No need to manage collateral, margin, liquidation prices, or anything like that; you just spend $10,000 on ETHBULL and have a 3x leveraged long coin.

ERC20 Tokens

Leveraged tokens are ERC20 tokens.  That means that–unlike margin positions–you can withdraw them from your account!  You go to your wallet and send leveraged tokens to any ETH wallet.  This means you can custody your own leveraged tokens; it also means you can send them to other platforms that list the leveraged tokens, like Gopax or BitMax.

How Do You Buy/Sell Leveraged Tokens?

Open an FTX account here to start trading leveraged tokens.

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