Imagine trading cryptocurrency just as you always do, but with the potential for higher profit. Thanks to the evolution of trading features, that desire can be granted.
Carried over from the traditional trading world is cryptocurrency margin trading. Put simply, this is the act of borrowing funds from your exchange of choice as leverage. That leverage can be used to maximize your profits, but it also brings additional risk in case your trade fails. We’re here to help with that.
Table of contents
If you’re looking to get involved with leverage trading, there are a few things to avoid. Keeping these following steps in mind, you’ll have a much easier cryptocurrency margin trading experience than most.
But first, let’s answer a few commonly asked questions.
What Does Leverage Mean in Trading?
While trading with leverage isn’t anything new, it can have significant consequences in the cryptocurrency space due to its volatility. This is thanks to borrowed funds from the platform in which you’re trading.
For example, if you’re on an exchange that offers 50:1 leverage, you can trade up to 50x your initial investment. That translates to 50x any profits you make.
When you invest $1,000 into Bitcoin, 50:1 leverage would turn that number into $50,000. If you sell and profit, you’d return the borrowed $49,000 to the exchange, but keep your multiplied profits and your initial $1,000 investment.
This is also referred to as cryptocurrency margin trading. The margin is your out-of-pocket investment. The leverage is what you’re provided by the platform.
However, this comes with a risk. While the initial investment requires less out of your pocket, it is entirely liquidated if the price drops against your bet. With great risk comes great reward – and also great failure.
How Does Leverage Trading Work?
The process of leverage trading is simple. Each exchange offers a different leverage position based on your initial investment. The higher the leverage, the higher rewards.
Is Leverage Trading Dangerous?
Yes, leverage trading can be dangerous. If your investment is falling, the position will eventually see liquidation. Your funds will be gone, which is risky for some investors. Just make sure to never invest more than you can afford to lose and you’ll be okay.
What Does a 50:1 Leverage Mean?
50:1 means you can leverage up to 50x your initial investment. Now, let’s discuss some of the issues to avoid when you trade on margin.
1. Don’t Start High
Chances are high that the price will shift in a way that isn’t beneficial for you, losing your investment in the process. It’s best to minimize your losses until you’re used to cryptocurrency margin trading.
Don’t invest $10,000 and leverage it by x50 on your first trade. It’s likely to leave a bad taste in your mouth.
Starting small refers both to your initial investment and leverage amount. It’s important not to take the maximum amount of leverage if you’re new. The potential profit is enticing, sure, but there’s no guarantee of a return on your margin trade.
Bitcoin is volatile.
A good site to start with is StormGain.
The platform offers up to 300x leverage on your initial investment and supports 0% trading commission on new orders as well. StormGain even offers you a secure wallet to store your assets in, and fast withdrawal options to quickly get your funds.
If 300x sounds like a lot for beginners, it is. However, this is a great platform to start small and slowly grow as you learn more about leverage trading.
2. Pay Attention to the News Cycle
Considering you’re betting on the future price of Bitcoin, you’ll want to pay attention to the news.
After all, even the slightest news story can have a significant effect on the digital asset’s price.
Maybe some new firm is going to adopt Bitcoin. It’s possible a law could come into play that will ruin any cryptocurrency margin trading gains. These scenarios and more are all bound to come up during your leverage trading experience. Make sure to be wary.
3. Learn to Stop Loss
While a stop loss isn’t a catch-all, this trading feature is a great way to minimize your potential losses. Considering Bitcoin’s volatility, it’s good to have one in place in case of a significant drop.
However, you don’t want it right below your initial investment, in case the price dips a little bit before jumping. It’s a balancing act, for sure. But one that’s vital to understand and take complete advantage of if you’d like to make profits while cryptocurrency margin trading.
A safety mechanism is never a bad thing – especially when it comes to your financials.
4. Know When to Profit
It’s easy to get caught up in the trading hype – more so if Bitcoin’s price is on a bullish run. But there’s always a time to pull out and keep your profits.
Many traders have been burned by waiting much longer than they should to sell. Now, you don’t have to cash out all of your earnings, but if you’ve gained significantly it’s probably a good idea to leave the market. Otherwise, you might see a sudden drop overnight and lose your entire investment.
Cryptocurrency margin trading can be a wonderous, profitable venture. If done properly, you can see profits galore. However, like all types of trading, to trade on margin is also quite risky – doubly so with a volatile asset like Bitcoin.
That said, it’s always possible to tip the trading scales in your favor. By following the rules above, you can avoid common mistakes and become a better overall margin trader. Be safe out there!
In line with the Trust Project guidelines, the educational content on this website is offered in good faith and for general information purposes only. BeInCrypto prioritizes providing high-quality information, taking the time to research and create informative content for readers. While partners may reward the company with commissions for placements in articles, these commissions do not influence the unbiased, honest, and helpful content creation process. Any action taken by the reader based on this information is strictly at their own risk.