Recently, leveraged tokens are popular because of their high volatility, and you can also use it to short or long a coin without being liquidated. Pionex www.pionex.com now released 4 leveraged tokens, BTC3L, BTC3S, ETH3L and ETH3S.
Maybe you are not familiar with it, now let's see.
1.How to understand the name of leveraged tokens?
The name is combined with 3 parts. Asset, leverage multiplies and short/long. For example. BTC3L means Bitcoin 3x Long. BTC3S means Bitcoin 3x Short
2.How's the price decided?
You may have seen that the price of leveraged tokens are different from bitcoin prices. The price is decided by 3 factors, the spot price, funding fee and rebalancing.
The formula of the price is P = (1±3*P0)*(1±3*P1)*...*(1±3*Pn) – 1 - 0.03%*n
The P represents price. n means how many days have left after the leveraged token has been generated. The price at the first date is P0. The P0 can be the same price as the spot market price, or any other number, such as 1 or 10,000.
How does the spot market price influence the token price?
From the name, we can know that the leveraged token price is related with the spot market price. Whenever the Bitcoin price increases 1%, the BTC3L price will increase 3%, and the BTC3S price will decrease 3%, and vice versa.
You may ask if i BTC3S be liquidated when the BTC price increases 33%? The answer is no. That's because we have the rebalancing mechanism will help to avoid liquidation. And also when the spot market price increases more, the leveraged token price will increase even greater than 3 times. When the spot market price decreases more, the leveraged token price will decrease less than 3 times. That's all due to the rebalancing.
And you may ask the risk and disadvantages of leveraged tokens. Also because of the rebalancing mechanism, when the spot market is in the sidewards market, the leveraged token price will decrease.
How much is the funding fee?
The funding fee is directly deducted in the leveraged token price, and the funding fee is 0.03% every day. That means the price of the leveraged token will decrease 0.03% everyday at 0:00 UTC.
What is rebalancing?
To understand rebalancing, you need to know that the leveraged token is actually a "basket".
What is a basket? It means the leverage token is combined with 2 coins, like BTC3L contains BTC and USDT. For example, if the bitcoin price is now 10,000 USDT, and the initial BTC3L price is also 10,000. When I buy one BTC3L token, I buy a basket of [3BTC, -20,000] basket. The 3 BTC is borrowed by pledging the 10,000 USDT. The leverage multiplies 3 times (3BTC*10,000/10,000=3). So when the Bitcoin price increases 1% to 10,100, the basket price will become 10100*3-20,000=10,300, which means a 3% increase.
When it triggers some rules, the basket will be rebalanced to maintain its 3x leverage. For example. When the bitcoin price increases 1%, the leverage multiplies become 30300/10300=2..94, which is smaller than 3 times, so we need to borrow more BTC to keep it as 3x. The basket will now become [3.06BTC, -20,600 USDT]
Rebalancing trigger conditions
The leveraged token basket will be rebalanced at 2:00 a.m. everyday. So in every 24 hours the leveraged token will keep 3x comparing with the spot market price
The leveraged token basket will be rebalanced when the spot market price changes 10%. That's why we say you can make more money when the spot price increase a lot. For example, if the spot price has increased 20% from 10,000 to 12,000. The basket will be rebalanced when the price has hit 10,100 and the leverage will keep 3x. So when the price is increasing from 10,100 to 10,200, you will make more money. The normal margin trading's leverage is decreasing when the coin price is increasing because you have more positions.
3.How to use trading bots with leveraged tokens?
Grid Trading Bot - make 3x profit in sidewards market
After reading this article, you may have learned that the leveraged tokens have bigger volatility, and the funding fee can be ignored in a short period. The daily funding fee is only 0.03%, that means 0.21% in a week and 0.9% in a month, and that's even less than a daily fluctuation. So you can create BTC3L/USDT or BTC3S/USDT grid trading bots, or even create then both in the mean time.
Risk warning: If the market changes from sidewards to one direction market, you may lose. The Grid Trading Bot has a range, and the leveraged tokens are easily to break the range. So you may lose if it' exceeds the range.
Infinity Grids Bot - if you believe the bitcoin price will be bullish
In a long term, we see Bitcoin price is always increasing. So if you are a bitcoin (or ethereum) believer, you can create an BTC3L/USDT Infinity Grids Bot. The bitcoin price has increased almost 3 times this year, so if you use leverage, the increase will be 9 times. What a good way! The Infinity Grids Bot will not only help you to earn the trending profit, but also the fluctuation profit.
Risk warning: If the market goes down a lot since you have created the bot, you may suffer a big loss in a long time.
Trailing Take Profit Bot - make 100% profit in hours
When the trend comes, you can gamble and follow the trend using the Trailing Take Profit Bot. You will make more than 60% profit if the bitcoin price increases 20%.
Risk warning: If the trend is fake and it's only a dip, you will lose money. However, the loss can be controlled by the "trailing percent" in the bot.
Q: Will the leveraged tokens liquidated?
A: Leveraged tokens won't be liquidated, but have the risk of dropping to a very low price. For example, BTC3S is 20USDT now. If BTC price continues to rise, BTC3S may fall to 0.01USDT or even much lower.
Q: How will leveraged token trading fee be calculated?
A: Leveraged token trading fee is the same as normal currency. And the trading fee is 0.05% on Pionex, so the trading fee for leveraged tokens is only 0.05% when buying and selling. No extra fee such as funding fees.
Q: will there be more leveraged tokens in the future?
A: There is no ETA to list more leverage tokens, but we have the plan.