Leveraged tokens are widely used in trading, but they contain certain risks that you should avoid. In its blog, the Binance firm published 4 recommendations to follow in order not to suffer losses that you may regret.
It should be noted that Binance’s leveraged tokens and LT tokens have important differences. The most important one is that the leverage of these is variable, unlike the first ones which are constant.
In simple words, the post explains, the 3x BTC up token, for example, means that its value is three times greater than that of Bitcoin. When there are losses, that’s when it gets complicated for investors. Therefore, recommendations should be followed to avoid risks with leveraged tokens.
Avoid taking big risks with leveraged tokens
Before going through the 4 Binance recommendations to avoid the risks with leveraged tokens, it is important to see the alternative to these. As mentioned above, Binance’s LTs (BLVTs) have the great advantage that their leverage is variable and ranges from 1.3x to 3x, which allows for more room for maneuver.
This does not mean that traditional leveraged tokens should be discontinued because they are risky. On the contrary, proper management can mean many gains for an investment.
On the other hand, if precautions are not taken, the consequences can be unfortunate. The Binance exchange assures that, although there are many measures that can be taken to avoid risks with leveraged tokens, there are 4 that are fundamental.
Keeping LTs in the long term?
Given the appearance of amplifying the investment, leveraged tokens seem like a very good long-term investment. However, Bitcoin Future considers that it is not a good idea.
This depends on whether the advanced token corresponds to a volatile or non-volatile crypt currency. In the first case, sudden changes can damage a long-term investment and cause losses for the investment.
„The long-term performance of leveraged tokens is imperative because of how the compound effect works differently,“ the post explains. This applies equally to Binance tokens, which they themselves do not recommend keeping 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 happens very often.
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 the tokens. However, when trend breaks occur, accumulated losses appear.
For this reason, Binance warns that before investing in LT, it is important to keep an eye on the state of volatility.