The news is by your side.

- Advertisement -

MARGIN TRADING

0 3

Get real time updates directly on you device, subscribe now.

The essence of margin trading is very simple: you trade borrowed money. When
you buy on margin, you pay a portion of the stock price (called the margin) and
borrow the rest from other players offering money. The balance of your margin
account is used only to serve as this borrowed money and to cover loan costs if
necessary. In other words, margin trading allows you to trade the amount of
money you don’t actually have. The borrowed capital you trade is called
leverage.
Let’s say you have $10,000. Relatively speaking, it is your margin. Say you
decide to trade with 1:4 leverage. This means you can make a $40,000
transaction. Your margin is 25%. You buy for $40,000, and if the purchased
currency starts to grow, your profit becomes four times larger, but if it all starts
to fall, your losses are also four times larger. Accordingly, if you buy
cryptocurrency for $10,000, you may lose all your money only if your asset (for
example, Bitcoin) drops to zero. If you buy cryptocurrency for $40,000 with
leverage on the margin account, you will lose all your personal money ($10,000)
when the asset falls by 25%.
Or let’s imagine another situation: you keep margin position in the Ether when a
flash crash occurs. In this case, your position will be closed by the exchange
itself since the Ether fell at that moment by more than 25%. As soon as your loss
is $10,000, the stock exchange will close your position of $40,000. That is,
$10,000 is something like collateral for your trading.
Margin or leverage in any other market is a good tool for maximizing your
profit. Almost all experienced traders use leverage. However, as we said earlier,
the cryptocurrency market is highly volatile, so here the leverage can
figuratively kill you. Why does it happen? Let’s compare it with the stock
market.
What can happen to make Apple shares drop, say, by 20%? I think nothing of a
kind can happen. Therefore, it is largely safe to trade Apple shares with leverage
as these shares cannot suddenly fall by even 10%. At the same time, you can
always close the position in the stock market because the trade is strictly
regulated here, and you can follow all the events.
On the contrary, the cryptocurrency market operates 24/7. Any developments are
possible here, including the most illogical and inexplicable when the price can
grow or fall by any percentage points. Therefore, if you trade with margin in the
cryptocurrency market, you’d better use the leverage of 1:2. Trading with a
higher leverage will resemble a Russian roulette. If you trade with leverage 1:4,
your position is most likely to be simply destroyed.
Always be cautious: if you find an exchange with a suspicious interface or you
are offered 1:20 leverage, this exchange must be hunting for marginal traders. It
hunts for greedy, cunning, and, as practice shows, stupid traders who want to
increase their profits twenty-fold immediately. Therefore, I will remind you once
again: if you decide to trade professionally, you should undergo verification in
the top exchanges. You should open accounts on at least two of them.
You should have two accounts for margin trading: the first one for your money
and another one for margin. To start trading with leverage, you should transfer
money from your first account to a margin account and trade from there.
You also need to know the following things about margin trading. Do you think
you will be given money for trading for no more than a “thank you?” Of course
not. You will be given money only at interest. If, for example, you use the
leverage of 1:4 and want to trade not for the $10,000 you have but for $40,000,
then you will pay a higher interest. It can reach 1% -2% per day. In the case
we’re considering, the interest accrues for $30,000. I remind you that you
actually only have $10,000.
And, finally, here are some tips for beginners.
When trading in the market, buy the assets whose value has fallen dramatically.
This is my main strategy now: to buy underrated assets or the assets whose price
has tumbled.
To close a position, put an order in only in case you have managed to get a profit
of more than 50%. It is very risky to wait for the larger profits, so close your
position when you have earned your 50%. I also do not recommend taking profit
of less than 10%. In my opinion, 20% is the minimum you should aim at.
However, feel free to place sell orders at 30%+ if you do intraday trading.
Do not forget that the exchange charges commission fees. The less you trade, the
higher the fees are. And the more your turnover grows, the more the commission
fees drop.

 

Get real time updates directly on you device, subscribe now.

Leave A Reply

Your email address will not be published.

Subscribe to our newsletter
Sign up here to get the latest news delivered directly to your inbox.
You can unsubscribe at any time

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More