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A Look at Leverage Trading: Learn to Run With the Bears and Ride the Bulls

A Look at Leverage Trading: Learn to Run With the Bears and Ride the Bulls

Cryptocurrency markets are volatile and people can make a lot of money from the up and down price variances. When digital assets touched all-time highs this past December, a great majority of digital currencies lost more than 70 percent of their value. Now some traders were able to call the top, while others ‘hodled’ in hopes of better prices in the future, and then some traders shorted the markets all the way to the bottom. There are a few exchanges that offer leveraged BTC/USD futures contracts and other margin positions that allow traders to make decent profits even when markets are extremely bearish.

Also read: Markets Update: Cryptocurrency Bulls Continue to Charge

Long and Short Cryptocurrency Positions: Making New Trading Opportunities With Leverage

When people think about trading cryptocurrencies they think about traders who make money by buying cryptocurrencies at a low entry price and selling it for higher than the original purchase price. And because digital asset values usually fluctuate, they can wait for markets to drop again and repeat the cycle. However, there are many other ways to trade virtual currencies and over the past six months of bearish crypto-markets, some people have been utilizing leverage and margin trading to turn negative market values into profitable opportunities.

A Look at Leverage Trading: Learn to Run With the Bears and Ride the Bulls
Margin trading can be risky and a lot of people get rekt along the way.

Traders using exchanges like Bitfinex, Kraken, Bitmex, and others could have shorted bitcoin this year making a lot of money if their strong convictions were timed right. Markets like the ‘Crypto Winter’ of 2018 was the perfect landscape for those who wanted to short cryptocurrencies and ride the slopes all the way down.

A Look at Leverage Trading: Learn to Run With the Bears and Ride the BullsA list of exchanges that offer leverage trading:

  • Bitmex
  • Bitfinex
  • Kraken
  • Poloniex
  • Etoro
  • Okcoin
  • Huobi Pro
  • Simplefx
  • 1Broker
  • Whaleclub
  • Coinbase Pro

Start With Small 5-10X Positions and Improve Your Trading Skills Before Venturing to Extremely Risky 100X Positions

If you predicted the tides were going to turn after BTC touched $19,600 per coin on global exchanges, then you should have opened some short positions. That means you believe the BTC/USD exchange rate was going to drop during after that period of time. So what you can do next time this happens is choose an exchange like Bitmex, Kraken, and others to open a short contract within the exchanges margin section. If you are new to leverage and margin trading, then you should start off by using as little as 5-10X leverage to get used to these types of market plays. Exchanges like Bitmex offer 100X leverage, which you should only use if your margin trading skills are extremely accurate. Moreover, the Bitmex exchange offers an exact replica of its website that accepts testnet coins so people can learn to trade with leverage without actually using real funds.

A Look at Leverage Trading: Learn to Run With the Bears and Ride the Bulls
Bitmex margin trading. The Bitmex exchange offers 100X leverage and also has a testnet exchange so people can practice honing their skills.

Opening a Simple Short or Long Position With 10X Leverage

To begin, first open a ‘short position’ on an exchange that offers this type of trading and set up a margin sell order with a specified amount, order type, and price. If you have strong conviction the BTC/USD exchange rate will fall and you have 10 BTC worth of equity ($82,071 USD) you can choose a 10X (or less) short position which gives you futures contracts worth 100 BTC ($820,711). Essentially, if the spot price of BTC drops by 1 percent, the overall 100 BTC value drops 1 percent as well. You can continue to gather profit until it drops 10 percent and pull out a fraction of your profit early as well. Or another way to look at leverage trading is you can also purchase 1 BTC ($8,200) for 0.1 BTC ($820) and short the price as BTC’s value slides. The absolute most you can lose with this type of trade is your original margin ($776) plus leverage fees.

A Look at Leverage Trading: Learn to Run With the Bears and Ride the Bulls
Kraken margin trading. Kraken only offers 5X leverage. 
A Look at Leverage Trading: Learn to Run With the Bears and Ride the Bulls
Bitfinex limit, market, and stop orders. 

The same applies for traders going ‘long’ and if they think the price of BTC will rise they can open a ‘long contract’ for 10X leverage or more. Again, you pay 10 percent, 0.1 BTC ($776), plus the takers fee, and you can profit if the price rises. If the price doesn’t rise and say moves down in the opposite direction by 10 percent, your loss is still limited to your initial margin. There are also different types of trading processes as well you can select after choosing the desired price and quantity. Some exchanges offer limit orders and stop order approaches to leverage trading. ‘Stop orders’ are the exact opposite of ‘limit orders’ which means the price must end up lower for a ‘stop sell’ order or climb higher for a ‘stop buy’ order. A ‘market order’ is the fastest way to start trading as it will use the best prices in the books to initiate a trade. Getting familiar with each type of trade will improve your margin trading skills immensely.

In addition to limit, market and stop orders, there’s also a process called a ‘stop-limit’ which acts as a safety net and you can place a ‘stop-limit’ order by setting the ‘stop price’ to a predetermined amount. This means it will sell before the price goes lower than the specified price trajectory. A method called the ‘trailing stop’ order sets the ‘stop price’ at a specified amount below the market spot price that’s tethered to a ‘trailing amount.’ Then there’s also the ‘fill or kill’ technique that represents an order to purchase or sell and its usually executed instantly.

Risk and Reward Is Greater

A Look at Leverage Trading: Learn to Run With the Bears and Ride the BullsUnlike typical trades, there are a few more associated costs with leverage trading like paying interest on borrowed BTC, because essentially you are borrowing liquidity from the exchange. Leverage trading is far riskier than traditional trades but the reward can be much higher as well. The reason for this is because leverage allows you to pay a fraction of the price for a full price trade, allowing individuals to enter much larger trading positions. Many of the trading platforms listed above also offer leverage options for a variety of other digital assets. The best thing to do is practice your leveraged trades with only a small fraction of coin and some small leverage. Some exchanges don’t offer huge amounts of leverage anyway and limit exposure to only 2-10X

After honing your margin trading skills, ‘Crypto Winters’ like the past six months of 2018 can look more like opportunities than losses.

What do you think about leverage trading? Do you short or long cryptocurrency markets on any of the exchanges mentioned above? Let us know how you trade in the comment section below.

Disclaimer: Trading articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”


Images via Shutterstock, Pixabay, Bitfinex, Bitmex, and Kraken. 


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