Bitcoin Leverage Trading
You can make trades for any amount of money. Beginners start with $100-$500. With that kind of capital, you can't expect to make super-profits. If a deal makes 10%, the trader will get only $10-$50.
If there is no possibility of increasing initial capital, Bitcoin leverage trading will help earn more. The Bitcoin leverage trading platform lends money so that the trader can increase his potential profit. But is it that easy? From this article, you will be able to find out:
- What is Bitcoin leverage trading?
- Features of Bitcoin trading with leverage.
- How to minimise risks?
When you trade in the financial market, you can use a service from your broker that allows you to make transactions with partial collateral. These transactions are often referred to as "leveraged transactions" or "margin trading".
Leveraged transactions allow you to make additional income, both when the market is rising and when it is falling.
Leveraged trading in cryptocurrency is a tool that allows investors to make spot trades (buy and sell) using borrowed capital from brokers. Typically, these funds are more than the investors' account balance.
Therefore, it is a great way to maximise profits by increasing purchasing power. And the best thing about this trade is that an investor can choose it with a small amount of money. For a regular trader, this is not even imaginable!
To take an example, a trader who enters into a leveraged trade with a margin of $100 can trade up to 10 x margin, i.e. with a margin of $10,000.
However, you should be aware that trading on margin carries a high level of risk, leading to considerable losses in the long run. Therefore, beginners are advised to be especially careful with margin trading, as many experienced traders suffer heavy losses. However, experts in regular trading can invest smaller amounts for margin trading.
How does it work? Features of Bitcoin leverage trading?
There are two ways to profit from leverage - in rising and falling markets. Just look at examples of long and short positions to understand all the nuances.
1. In a rising market.
Cryptocurrencies and especially Bitcoin trading with leverage are in a bullish trend. As a result, most participants expect a gradual rise in crucial assets. For example, suppose a user wants to buy 1 BTC with a leverage of 1:5 at a rate of $60,000.
An amount of $12,000 will be enough to provide collateral. But it is possible to use more funds. In case of growth, the trader closes the transaction at any convenient moment.
After that, the amount of deposit and profit remain on the account. The exchange takes a commission for the transaction and the use of credit funds.
If the BTC rate falls to $51,000, the trader will receive a margin call. He can reduce the position, increase the collateral amount or do nothing. If the rate drops to $49,000, the Bitcoin trading platform with leverage will liquidate the trade. The user will have about $1,000 left in their account.
2. In a falling market.
Any asset can be shorted - playing down. For example, suppose that the user borrows 1 BTC with leverage of 1:3 and sells at a rate of $60,000. An amount of $20,000 is provided as collateral.
The Bitcoin has fallen to 50,000. The trader closes the trade - it has brought in $10,000 without deducting commissions. The total balance is now 30,000.
However, the rate when trading the cryptocurrency on the margin on the exchange can go up. For example, if the price of BTC rises to $73,300, the trader will get a margin call. The liquidation will occur at the 78,000 mark. After that, the user will have $2,000 in his account without any fees.
Rules for smart margin trading
If a trader is not prepared for Bitcoin trading with leverage, it promises money losses. To avoid this, you need to know the rules of margin trading.
1. What is a margin call?
When a trader trades on margin, the trader will begin to incur losses if the price has not moved in the direction the trader had hoped. Losses reduce the margin, and when it reaches a critical value, the trader receives a notification from his broker to add funds to his account. This notification is called a Margin Call.
The notification goes through the trading terminal or comes by email. At this stage, the broker simply warns the investor - no compulsory action will be taken.
Now a trader can act in three ways:
- Deposit additional funds into his trading account. However, this may increase the number of losses in the future;
- Do nothing. If the stock price starts to grow, the trader will be able to recoup his losses, and additional money will not be needed;
- Do nothing. But if the stock price continues to fall, the amount in the account will be further reduced, and the broker will declare a Stop Out.
2. What are Stop Loss and Take Profit?
Stop Loss and Take Profit are protective orders placed to close a trade automatically. Stop Loss limits possible losses of the trader. Take Profit helps to fix the Profit when it reaches the necessary level.
The primary purpose of these orders is to control trading without a trader. For example, if a user cannot constantly be at his computer or open orders for the long term, such functions are helpful and irreplaceable. After all, in the absence of the trader, the market can abruptly turn around and go in the opposite direction, and in a short time, a profitable trade becomes unprofitable.
Stop Loss will help to minimise losses in such a situation. The opposite is also true: if a strong movement takes a trade to a good profit at some point, a take profit will help to lock it before a pullback occurs in the opposite direction.
3. Cryptocurrency price movements.
Digital assets differ from stocks and fiat in their level of volatility. Even large coins such as BTC or ETH fall or rise by 5-10% in one day. This increases the risks when trading leveraged cryptocurrencies.
The price can minimally touch a liquidation level and then go backwards. However, it is no longer possible to get the time back, nor can it get the money back.
Traders lost more than $2 billion at the end of March 2021. At that time, after BTC fell to $51,500, 282,000 users' positions were liquidated. Had they traded on the spot market without margin, they would have been in the black by the fall - BTC broke through $66,000 in October.
Reducing risk with money management
If you apply the proper money management principles, then the amount of leverage will not matter to you.
What is the reason? Traders calculate their risk as a percentage of their total balance. In other words, the total amount of risk on a trade, even with leverage, will be less than 2%.
Let us assume that the same trader has $1,000 on his balance and the same ten pips stop loss. However, instead of using 100:1 leverage, where each pip is worth $10, he would use 10:1 leverage, where each pip is worth $1.
Now, if the price moves ten pips in the opposite direction, the loss will only be $10 - only 1% of the trading account balance.
By applying money management and considering the risk of the trade, you can safely use leverage because even with it, you will risk no more than 2% of your trading capital.
Starting Bitcoin leverage trading
So, if you are eager to make money and start Bitcoin leverage trading, you need to register on the platform. Registration is a quick and easy process. You should also verify your account to secure your personal details and the assets in your account.
There is also an excellent opportunity to get familiar with the interface of the platform and the Bitcoin leverage trading platform through a demo account. This way, you can try out different trading strategies without risking your money. The website also has excellent video tutorials to help you learn more about the trading topics you are interested in.
Advice for traders on margin trading
Do not ignore the news.
The cryptocurrency market regularly sees actual events. They can be divided into several categories:
- Regulation. Countries make official statements and pass laws on digital assets. If a significant state bans cryptocurrency transactions, it always harms quotes.
- Opinion leaders. Scholars, celebrities and bloggers have varying degrees of interest in Bitcoin and other coins. As a result, their statements have an impact on the audience. A well-known personality can quickly push a cryptocurrency to the top. Recently, a Twitter user asked Elon Musk about the number of SHIBA INU tokens. When the entrepreneur replied that he didn't keep any coins, the asset's exchange rate plummeted 20%.
- Finance. Investors' willingness to invest in cryptocurrency is influenced by various indicators: the inflation rate in the country, the situation in other markets and so on.
Many exchanges require such options when making transactions with high leverage. This limits the potential losses. The trader will determine in advance how much he will lose in case of failure.
Most importantly, don't stop learning and believing in your abilities. Instead, persevere towards your goal, and then you will achieve what you want. Good luck!