What is the difference between Swaps and Leverage trading in Defi?

Mirakle
3 min readOct 1, 2023

When it comes to trading, there are numerous ways to engage in cryptocurrency trading. Two popular methods are swaps and leverage trading. While both are executed on decentralized exchanges (DEXs), they serve distinct purposes and come with unique characteristics and risks. In this article, we will explore the key differences between swaps and leverage trading in general and in Mirakle to help you make informed decisions in the DeFi landscape.

What are swaps?

Swaps are a type of trade that allows you to exchange one cryptocurrency for another without the need for an intermediary like a centralized exchange. In DeFi, swaps are typically executed on DEXs using automated market makers (AMMs)

Explain more, AMMs use a mathematical formula to determine the price of a token based on the ratio of the token’s supply in the liquidity pool to the supply of the other token in the pool. This means that the price of a token can change based on the amount of liquidity in the pool and the demand for the token.

The benefits:

Swaps are useful for quickly exchanging tokens without having to go through the process of depositing funds on a centralized exchange. Additionally, because swaps are executed on-chain, they are typically more secure and transparent than trades on centralized exchanges.

Moreover, Swaps are generally considered low-risk because they do not involve leverage. The potential loss is limited to the amount initially invested, making them suitable for traders seeking simplicity and lower risk.

Besides, Swaps profits traders by allowing them to capitalize on price disparities between two cryptocurrencies.

For instance, if you anticipate the value of Ethereum (ETH) will increase compared to Bitcoin (BTC), you can execute a swap to acquire more ETH and potentially profit from its price appreciation.

What is leverage trading?

On the other hand, leverage trading is a way to open a position on a token’s price movement. You can choose to open a long position if you think the token’s price will go up, or a short position if you think the token’s price will go down.

The benefits:

Leverage trading allows traders to diversify their portfolios by opening positions on multiple assets with a smaller amount of capital. This can help spread out risk and potentially increase overall returns.

Leverage trading allows traders to customize their positions by adjusting the amount of leverage they use and the size of their position. This can help traders tailor their trades to their specific risk tolerance and investment goals.

Leverage trading can also be used as a hedging strategy to protect against potential losses. For example, a trader could open a short position on an asset they hold to hedge against a potential price drop.

The key differences between swaps and leverage trading.

Mirakle supported both swaps and leverage trading.

In Mirakle, users have the flexibility to choose their preferred trading strategy based on their risk tolerance and market outlook. Whether you’re looking for straightforward token exchanges or seeking amplified profit potential, Mirakle offers both options within a secure and decentralized environment.

Swaps, in the context of Mirakle, refer to the straightforward exchange of one cryptocurrency for another with zero price impact. This means that the price you see on the swap interface is the exact price you will get when you execute the trade.

Leverage trading on Mirakle allows you to open a position on a token’s price movement. You can choose to open a long position if you think the token’s price will go up, or a short position if you think the token’s price will go down. With leverage trading, you can earn a profit if your prediction is correct, but you can also make a loss if your prediction is wrong.

Reading more information about Trading by accessing this link: https://mirakle.gitbook.io/home/trading

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