Margin levels, thresholds and liquidation prices
When trading with leverage, it's not just the asset price you need to monitor – your margin level is just as important. It reflects the ratio between your own funds (equity) and the borrowed amount used to open a position. This level helps determine how close your leverage position is to being at risk of being liquidated.
As the value of your crypto assets forming part of the leverage position drops due to either market losses or accumulating fees, your margin level falls. If it drops below a specific threshold, called the maintenance margin, your leverage position becomes vulnerable. The platform may trigger a margin call, asking you to top up your funds and provide additional collateral or to repay the borrowed funds by closing your leverage position. If you don’t react in time, or the price continues to move against you and further fees accumulate, this can result in the margin level falling below the minimum margin level (this is also referred to as Liquidation Treshold) and your position can be liquidated to prevent deeper losses.
Example: You’ve opened a €2,000 position using €400 in own funds After four days of fees (€ 12 total) and a price drop that reduces your own funds to €190, your margin level slips below the platform’s liquidation threshold. The platform closes your position automatically to protect your remaining funds and applies a liquidation fee. The final amount returned to your wallet depends on how much equity remains after all deductions.
What influences the liquidation price?
The liquidation price, the price point at which your position is automatically closed, isn’t fixed. It shifts based on:
Leverage: Higher leverage increases the risk and narrows your safety buffer.
Market volatility: Sharp price swings can erode your equity faster than expected.
Accumulated fees: Daily fees eat into your equity over time, even in sideways markets.
Platform-specific rules: Each platform defines its own liquidation margin thresholds and may use buffers for added protection.
Stay in control with Bitpanda’s risk indicator
Bitpanda provides a colour-coded risk indicator to help you track the health of your leveraged positions. It gives a clear view of your margin level, showing how close your position is to being liquidated based on your current equity and market conditions.
The indicator is split into three zones:
Green shows your position is stable and healthy.
Yellow signals medium risk and shows that you need to monitor more closely.
Red means your position is at risk. If it drops further, Bitpanda may automatically close it to prevent bigger losses.
Leveraged tokens
Leveraged tokens are a simpler way to gain leveraged exposure to a crypto asset. They’re designed to track a multiple of the daily return of an underlying asset – for example, 2x long BTC rises 2% when BTC goes up 1%, and drops 2% when BTC goes down 1%.
The key difference? With leveraged tokens, you don’t borrow funds or manage margin manually. Instead, the token itself handles everything in the background. It automatically rebalances to maintain its target leverage and removes the risk of liquidation.
Leveraged tokens are separate assets that fluctuate with the price of the underlying cryptocurrency, like Bitcoin, rather than the actual asset itself. With margin trading, you're trading the actual asset, just with enhanced exposure. That distinction makes leveraged tokens more accessible for everyday traders.
Let’s break it down:
You buy a leveraged token just like you’d buy any other crypto.
There’s no need to manage collateral, borrow funds or watch liquidation levels.
The leverage is built into the token, and it’s rebalanced daily to stay at the target multiple.
This makes leveraged tokens ideal for:
Short-term trading strategies in trending markets
Users who want to leverage without the complexity of managing a margin position
Avoiding liquidation risk and sudden position closures
However, there’s a trade-off. Because the token rebalances every day, returns can be affected by market volatility – especially in sideways markets. This can reduce the token’s effectiveness over time and make long-term holding less efficient.
In short, leveraged tokens offer a simplified experience with fewer moving parts – but they’re best used tactically, not as a buy-and-hold investment.
Perpetuals and futures
Perpetual contracts and futures are both types of derivatives – financial instruments that derive their value from an underlying asset, like Bitcoin or Ethereum. Instead of buying the asset itself, you trade on its price movements.
What’s the difference between the two?
Futures are agreements to buy or sell an asset at a fixed price on a specific date in the future. Once the contract expires, it is settled – either in cash or by delivering the asset.
Perpetual contracts work similarly but without an expiry date. You can hold the position as long as you want, as long as you maintain the required margin.
To keep perpetual contracts trading close to the market price of the underlying asset, there’s a mechanism called funding fees. These are periodic payments between long and short positions, depending on which side is more in demand. If you're holding a position when the funding is due, you either pay or receive a fee.
Why use them?
Both futures and perpetuals allow traders to open highly leveraged positions – sometimes 50x or more. That means a small change in price can lead to significant gains or losses. These products are popular among institutional and professional traders for:
Arbitrage: profiting from price differences across markets
Hedging: offsetting potential losses in other positions
Speculation: taking positions on price movements without owning the asset
High-frequency trading: executing many trades quickly using algorithms
But with high leverage comes high risk. Sudden price swings can lead to liquidation – where your position is forcibly closed and your margin is lost. The more leverage you use, the smaller the price movement needed to trigger a liquidation.
Because of their complexity, volatility and cost structures (like funding fees), these instruments require a strong understanding of how derivatives work. Unless you’re already comfortable with leverage, it’s wise to stick with more accessible options like margin trading or leveraged tokens.
Smart strategies and risk control
Leverage is powerful, but it needs discipline. Without a risk strategy, even experienced traders can be caught out. Here’s how to stay ahead:
Use stop loss orders to limit downside risk. These automatically close your position at a pre-defined loss level.
Set take-profit orders to lock in gains. This helps avoid getting greedy or missing your ideal exit.
Size your positions carefully. Don’t use all your capital on one trade. Diversification applies to leveraged trades, too. You can also adjust your exposure by adding to or reducing an existing margin position, depending on your strategy and market conditions. Only use capital that you can afford to lose.
Understand liquidation levels. If your margin falls below the maintenance level, your position may be liquidated. Always know where this level lies and monitor it actively.
Common mistakes and how to avoid them
New to leverage? Here’s what to watch out for:
Going all-in on one trade: It only takes one wrong move to lose everything. Keep margin positions small.
Skipping the learning curve: Just because it’s easy to click “5x” doesn’t mean you should. Learn how the tools work before you use them.
Emotional trading: Losses hurt – but doubling down emotionally often leads to bigger ones.
Neglecting market conditions: Volatile or illiquid markets can spike in either direction. Trade only when you understand what’s moving the market.
Ignoring fees: Leveraged products often come with overnight fees, funding costs, liquidation fees and spreads. These eat into profits over time and influence your margin.
How fees affect your leveraged trades
Fees are an often-overlooked factor that can have a major impact on your performance, especially when trading with leverage. These are the main ones to consider:
Buy fees: Charged when opening a leveraged trade.
Funding fees (or interest fees): Charged for holding a margin position open. Timing varies by platform – on Bitpanda, they accrue every 4 hours.
Liquidation fees: Applied if your position is automatically closed due to insufficient margin.
Closing fees: Taken when you manually exit a leveraged trade.
Example: You open a € 5,000 margin position with € 1,000 of your own funds and pay a 0.15% daily fee on the full position. After five days, that’s € 37.50 in fees – 3.75% of your margin is gone, even if the price hasn’t moved. If your position is later liquidated, an additional liquidation fee will be deducted from your remaining equity.
Always factor in the cost of holding and closing trades, especially if your strategy involves longer timeframes or high leverage. Small fees can compound into large costs and reduce your ability to recover from downturns.
On Bitpanda Margin Trading*, there is no buy fee when opening a position. You’ll pay a 0.3% closing fee when you close it, and a 1% fee if your position is liquidated. The funding fee is 0.03% every four hours, or 0.18% per day.
Trade with leverage on Bitpanda
With Bitpanda, you can trade with borrowed capital across a growing range of leveraged products – directly on the Bitpanda platform. Whether you want full control over your trades or prefer a simpler approach, you’ll find tools designed to match your strategy.
Bitpanda Margin Trading* lets you trade more than 100 cryptocurrencies with up to 10x leverage. Go long, track your positions in real time and manage risk with ease. Liquidation alerts help you stay informed, and with Margin Limit Orders – including Take Profit and Stop Loss, you can better control and apply your strategy.
If you prefer leveraged exposure without actively managing margin, Bitpanda Leverage also offers leveraged tokens. These track the daily performance of an asset at a fixed leverage level – like 2x long or short – and are ideal for short-term market moves. There’s no need to manage collateral or worry about liquidation, making them a straightforward way to access leverage.
Start exploring your leverage options with Bitpanda today and find the product that fits your strategy.
