How to make money leveraging cryptos?
Margin trading or Leverage trading is basically betting on money that you have loaned. It is not your money that you are betting on and it is at most important to be really careful about the trades you take. It is generally used by advanced traders who are aware on the concepts like Risk Management and Technical analysis. It is suitable for beginners and you should have at least several months of trading experience before you attempt to margin trade.
In Leverage trading, you are basically swapping out contacts with others utilizing the platform. So here if you are shorting, you are swapping the contracts with someone going long and if you are going long, you are swapping with someone going shot, in other words ‘Shorting’. Leverage is the amount of funds that you decide to borrow. The higher the leverage you choose, the riskier it gets. It can range from 2x to 100x depending on the services that exchanges choose to provide. As you increase the leverage you want to trade with, the more funds you borrow and the chances of you getting liquidated increases.
The Liquidation price basically means the price at which your account balance is completely wiped out. Your liquidation price is given to you before you start the transaction and the entire time during your transaction so that you can keep a track of it during the entire trade. You never have to worry about calculating the Liquidation price as almost all the exchanges that allow Margin trading on Cryptos provide significant calculators that are capable of displaying real-time Liquidation Price.
The fundamental principle on which Leverage trading work on is Shorting and Longing. A short position is betting that the price movement of a respective Crypto will decrease and Long position is betting that the price movement of a respective Crypto will increase. When you are shorting, the liquidation price will be more than the market price and when you are buying the liquidation price will be lesser than the market price.
Making money by leverage trading Cryptos is like playing around with a double-edged sword. It’s more rewarding but with a lot of risks involved. However, you can minimize the risk and maximize the reward by incorporating a few techniques in your daily trading activities.
Scaling in and out of your position is one of the most useful techniques to maximize profits and minimize the risk of loss. Layering your trades instead of depending on one single trade is the best way to go. For example, you are trading at $2000 and want to take a long position at $10000 on Bitcoin. The current position is at $10500. Instead of watching the chart all day and trying to time that five-minute window in order to get the closest price to that $10000, you would simply set multiple entries on the way down. This would look something like $500 at $10400, $500 at $10300, $500 at $10200 and $500 at $10100 in case the price drops. All the entry points may not get filled as the price may only reach $10400 but you’ll be at a much better entry point with the capital in the trade. It’s Vice versa for the exit positions.
Buying long and selling short simultaneously is one of the strategies that advanced traders use to mitigate the loss. In this case, you need to have two accounts in an exchange in which you are planning to margin trade. That shouldn’t be a problem because you can have a number of accounts without giving out your personal information in most of the exchanges these days. In one account you will set up a long entry point above the potential breakout while on the other account, you will set up a short entry point below the potential breakout. This way you’re setting yourself up a major advantage of the breakout in either direction.
Understanding the services that an exchange provides can help you monitor your leverage trades more effectively. Stop loss, using the market orders and limit orders are some of those. For the majority of your trades, you are going to want to use limit orders with the “post-only” feature checked. But there are occasions where you should be using market orders. Utilizing stop losses are highly recommended when trading cryptos, especially when you’re not close to your computer or watching the market. For everything else, best practice is by sticking to the limit orders.
The one credible platform for margin trading Cryptos for a long time is Bitmex. If you are a novice trader and would like to get into Leverage trading, this would be your ‘go-to’ exchange.
One major advantage of Bitmex is that you can leverage your trades with as much capital as you want. 2x-10x is the leverage range you should be choosing to start with. Anything above this would be risking your liquidation. When you choose to bet on higher leverage without any risk management you are inviting the trouble. However, if you really want to trade over 20x leverage make sure you do it with a minimal amount that you can afford to lose. Experienced traders who margin trade with 20x-40x are typically watching the charts with their eyes wide open because they do not afford to lose their entire portfolio if something goes wrong.
Lastly, always plan your trades ahead of time and never trade in a rush. Generally, when you try to “catch a falling knife” or “catch a moving rocket”, things don’t end up going very well for you. The extra excited you are, the more idiotic your decisions become. So keeping cool, using logic and trading without greed can help you in taking better decisions while you leverage trade cryptos.