In a tweet today, Binance announced some user base statistics including that a whopping 21% of exchange participants use 125x leverage on average. Using leverage is essentially taking out a loan for a trade, meaning that users have 125 times their buying power. $100 in this case could scale to $12,500. The catch is that you can lose your money 125x more quickly.
Within its first two months of operations, #BinanceFutures reached an ATH daily trading volume of more than 370,000 BTC (approximately $2.7B USD at date).
On average, over 60% of traders use 20x or higher.
21% of traders use 125x leverage.
— Binance (@binance) December 9, 2019
Crypto assets are volatile, trading is risky and combining the two with 125x leverage results with a small chance of profiting. Just today, there was a 5% wick in a low volume range that rose and depleted within five minutes. Market reactions that nobody expects can easily liquidate a 125x position.
Binance’s statement did not clarify whether or not 125x leverage was considered to be the same as cross leverage. Cross leverage takes funds from your wallet as your position falls, putting liquidation further away as long as you didn’t go all in. Usually, cross leverage takes the minimum amount necessary to enter the trade, in this case, 1/125th of the position size, allowing users access to leftover funds unless the position starts losing money.
Traders pay a percentage fee based on the position size, so the more amount of money exchanges can offer traders, the more they will profit. Using this type of leverage wouldn’t fly past US regulators, which is likely why Binance and Poloniex abandoned US citizens. Regardless of how dangerous trading with leverage is, the fact that US traders don’t have legal access makes them feel left out.