Top Trader Average Leverage Used

What is leverage?

Leverage is an important function in the crypto market and some even say it's at the heart of derivatives trading.

Most crypto exchanges offer leverage to their users. Leverage allows traders to borrow funds in order to enter a position larger than their own funds permit. Traders who trade with leverage are doing so with the goal of capturing larger gains but also at the risk of being "liquidated", or losing all or nearly all of their Initial Margin. Initial Margin is basically the amount of money coming from the traders pocket. If this trader wants to enter a $5000 trade with 10x leverage, then $500 is the Initial Margin and the remaining $4500 are borrowed funds.

Exchanges cannot allow a trader to lose borrowed funds and therefore close out the position as soon as position losses reach the initial margin. When entering a trade with leverage, most exchanges provide the price at which the trade would be liquidated otherwise known as the liquidation level.

Why is leverage a useful data point?

If we know the amount of aggregate leverage being taken out by users, then we can also understand how risk-on or risk-off the current market is.

For example, if we know that on average, longs are using 12x leverage while shorts are using 2x leverage, this is useful information. It can increase the likelihood of a long squeeze (as price drops, it may trigger a cascade of liquidations, quite common in crypto). Similarly, a market (or trend) may be considered “healthy” if the amount of leverage taken out is low.

What is this indicator actually showing?

This indicator shows the average leverage taken out by “top traders” (larger accounts), separated by long leverage and short leverage. So if long leverage is 5.6, it implies that longs are taking out 5.6x leverage on average.

Hyblock users can track not only the current amount of leverage used but also in which direction leverage is trending.

Note: Top Traders does not mean the best or sharpest traders, it is just a particular segment of the entire population. Each exchange has their own definition of “top traders”, but in all cases it is just a portion of all accounts either by size of account, volume etc.

Top Trader Average Leverage Delta

Users can also look at the "gap" between average long leverage and average short leverage, known as the delta. In other words, Top Trader Average Leverage Delta is the difference between leverage used by long and leverage used by shorts.

This can be used to track when leverage on one side is significantly offside, identify any spikes in leverage, and monitor which direction leverage is building (trending) toward.