What are Leveraged Tokens?
Leveraged tokens are tokens which have leveraged exposure to cryptocurrencies. Each leveraged token owns a position in futures contracts. The price of the token will tend to track the price of the underlying positions it holds. Trading with Leveraged tokens is different from Margin Trading because leveraged tokens require no collateral when traded on margin.
How do I buy and sell them on CoinDCX?
You can trade the leveraged tokens on CoinDCX.
Go to CoinDCX website and log in.
Click on DCXtrade and select “ALL” pair option.
Select the following leveraged token of your choice.
Which leveraged tokens are available on CoinDCX?
Following are the leveraged tokens available on CoinDCX:
- 3X Long Bitcoin Token (BULL)
- 3X Short Bitcoin Token (BEAR)
- 3X Long Ethereum Token (ETHBULL)
- 3X Short Ethereum Token (ETHBEAR)
Note - These are ERC20 and BEP2 tokens which are issued by FTX. All the tokens are paired with USDT to trade on CoinDCX.
How do I deposit and withdraw the tokens?
Leveraged tokens are ERC20 tokens. You can deposit and withdraw them from the CoinDCX wallet page to any ETH wallet.
Why Leveraged Tokens?
There are three reasons to use leveraged tokens.
To Manage Risk
Leveraged tokens will automatically reinvest profits into the underlying asset. If your leveraged token position makes money, the tokens will automatically put on 3x leveraged positions with that.
Conversely, leveraged tokens will automatically reduce risk if they lose money. If you put on a 3x long BTC position and over the course of a month BTC falls 33%, your position will be subject to forced liquidation and you will have nothing left. But if you instead buy BULL, the leveraged token will automatically sell off some of its BTC as markets go down likely avoiding forced liquidation so that it still has assets left even after a 33% down move.
To Manage Margin
You can buy leveraged tokens just like normal ERC20 tokens on CoinDCX. There is no need to manage collateral, margin, liquidation prices, or anything like that; you just spend $10,000 on BULL and have a 3x leveraged long coin.
Leveraged tokens are ERC20 tokens. That means that unlike margin positions, you can withdraw them from your account. You can 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.
How are the returns calculated on Leveraged Tokens?
If the movement of the underlying asset on days 1, 2, and 3 is M1, M2, and M3, then the formula for the price increase of the 3x leveraged token is:
New Price = Old Price * (1 + 3*M1) * (1 + 3*M2) * (1 + 3*M3)
Price movement in % = New Price / Old Price - 1 = (1 + 3*M1) * (1 + 3*M2) * (1 + 3*M3) - 1
Take BULL(+3x), a 3x long BTC token:
For every 1% BTC goes up in a day, BULL goes up 3%.
For every 1% BTC goes down, BULL goes down 3%.
As an example, say that a user creates or buys 10 BULL tokens when the BULL NAV is $5,000, spending $50,000. Then, say that the BTC token goes up 5% that same day, from $4 to $4.20. BULL's NAV will increase 3 * 5% = 15% from $5,000 to $5,750. If the user sells the BULL at the new NAV - $5,750 — the user will make $7,500 on their $50,000 investment.
To learn more about how the FTX leveraged tokens work, please read a detailed guide and walkthrough here.
You can start trading Leveraged Tokens here.