Many people think that the only way to make money in the crypto space is to buy bitcoin and hold it. There are many other ways and margin trade is undoubtedly one of the most powerful tools to increase and grow one’s trading portfolio. However, the risk associated with it is directly proportional to the benefits.
Suppose Thomas is an expert trader and he wants to buy Bitcoin after carefully studying and researching his technical and fundamental analysis. But, Thomas didn’t have enough Rand to buy more bitcoin. Thomas could use Margin trading to increase his buying power with leverage, which is usually a third party, in this case, exchange to fund his account.
Find out about the recently launched Remitano Margin Trading.
What is Margin trade?
Margin trade is simply a system of trade that allows one to open a buying position with leverages through funds borrowed from the exchange.
How does Crypto margin trade work?
Remember Thomas wanted to buy BTC, but his purchasing power wasn’t enough. If Thomas succeeds in taking leverage say 3X and bitcoin rose by 10% after he took the margin trade. Then his position would have resulted in 30% because of the 3X leverage he took.
Things to Understand before you start Margin Trade
To start margin trade, there are some things you should understand, and below are some of these things:
You Must Start Small
Even if you have mastered all the strategies in crypto trading, it is crucial to understand that the best way to start with crypto margin trading is to start small. You must start with an amount you can afford to lose. This is just to prepare for the unexpected in case things don’t go as planned.
Not only with starting small helps you to explore and experiment with various strategies but also the little wins you record will be the springboard to you gaining more confidence and simultaneously understanding what works and what does not.
Starting small could be subjective with regards to amount hence it is best put this way: You do not have to start with 40x-100x. You want to take a lower leverage position and collateral to avoid liquidation at a speed of light.
Still, on starting small, it has been proven according to a study published on Hackernoon that excessive leverage like mentioned above could easily lead to liquidations
Pay Close Attention To Technical And Fundamental Analysis
Before you take any position in margin trading, you want to pay close attention to both Technical and Fundamental analysis. It is important to note that either of these could turn the tide against you or in your favor.
For technical analysis, you want to pay attention to the support and resistance levels. This is so because with Margin trading a simple and minor change in price could alter the support and resistance level. As a crypto margin trader, you should understand the various levels that exist across different support and resistance time.
A lot is happening in the crypto world that often affects the market. From the SEC regulations to countries trying to ban Bitcoin or even Bitcoin ETF. While holding a margin position you must be extra careful because this major news could cause a nosedive or spike in market prices. A good example of this is how we have seen big figures like Elon Musk causing a spike.
Understanding The Fees and Interest rate
You do not think any exchange or platform will lend you capital to trade for free. Or, do you? Perish that thought, my friend. All platforms and exchanges that are open to margin trade have a specific rate and fee that is tied to a certain percentage of capital that is borrowed.
And since there are different fees and rates across different platforms you want to understand that of the platform you are trading margin on. Doing this would not only equip you with how to trade but only gives you a better chance at succeeding.
Understanding the interest rate is also part of a good trading strategy because not doing so could lead to recording a loss while even though you made profits. Some trading platforms BitMax offers as low as 0.01% per day and 3.65% per year. While platforms like Binance interest rate is based on hourly calculations.
Stop Loss Should be Your Friend
That you want to start margin trading implies that you are not a noob in crypto trading hence you understand the significance of using stop losses. Always use stop losses. The Stop-loss feature is present in almost all exchanges. Yours is to use it to your advantage.
The functionality is one of the ways to practice risk management in trading. It helps you to avoid excessive loss in the capital in case the trade does not turn out as anticipated. It also helps you to set the inadequate loss you are willing to take.
However, it is crucial to know how to place your stop loss. You do not want to place your stop loss at a point close to your buying prices. This could instantly be triggered. Also, you do not want to place your stop loss too far as it could bring in more loss than you can bear. Therefore, you should understand how to use it efficiently.
Do Not Put All Your Eggs in One Basket Due To Volatility
To mitigate risk and avoid fast liquidation, as an investor you should spread your capital across various positions. Yes, even if you are a crypto guru. This way, you will be able to control and adjust your position should things go wrong. And across each of these positions, you can take your profit and loss.
And as margin traders, you do not want to place your orders and go off the grid. There is enough risk in margin trade to add crypto to that makes it even worse. So, you want to be ready and prepare for the price fluctuation that could occur either way.
A good trader would take advantage and profits from the deep by setting a close target to the deep.
Have a Strategy and Stick to It
This happens to be one of the open secrets of most successful traders–they have a strategy that they do not default from. As an investor, you want to strictly follow your winning strategy and only fine-tune it when there is a need occasionally.
These needs should not be based on speculations or rumors rather based on your deep research and learning from wins and losses. You do not want to base your strategy on a Twitter influence that tweeted buy bitcoin.
Keep Your Emotion in Check
As humans, this might be quite difficult. Not even the best amongst us would say they haven’t fallen victims to their emotional manipulation. However, as a crypto trader who seeks to start a margin trade then you want to work more on how to keep your emotions in check.
Simply put, you have to keep your emotion in check by not having regrets for the profit missed, and not blaming yourself for the losses incurred. Regardless, of what happens you want to stick to the step above which is “having a strategy and stick to it”.
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