Best Bitcoin Leverage Trading: Strategies and Favoured Platforms

in #bitcoin5 years ago

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When talking about Bitcoin leverage trading, it’s common to come across passionate ‘haters’. This is due to the fact that leverage trading, aka margin trading, is a high-risk trading strategy that while significantly increases a successful trade’s profits, unquestionably increases the chance of loss.

On the contrary, there is an equal amount of love for Bitcoin leverage trading, however, leverage ‘lovers’ are hesitant to recommend it out of fear to being the cause of someone’s loss who didn’t fully grasp the risks.

The best Bitcoin leverage trading tip can be summed with a few basic provisions: be entirely aware of the risk, establish your personal risk-reward ratio accordingly, and stick to a plan.

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Understanding Margin & Leverage: How it Affects Risk

What’s important to understand about leverage trading is that any profits made using it are equivalent to the increased (leveraged) position, while the losses are limited to the original amount invested into the trade (the margin) before leverage was applied.

But, any price action, whether positive or negative, is equivalent to the increased position size. This means that if the price moves in the opposing direction, the capital held in the margin trading account can be spent very quickly.

For example:

Let’s say that $1,000 was deposited into a Bitcoin margin trading account and 100x leveraged was used to open a $100,000 long position, with the expectation that Bitcoin’s price would increase. If the price went up by a modest 0.3%, the trade would net a $300 profit (0.3% x $100,000 = $300), but if it went down it would likewise take a loss of $300, because any price action (up or down) is proportional to the $100,000.

Keeping this in mind, consider the price moved positively by a sharp 5% - the trade would profit by $5,000, while the loss would be capped at $1,000 if it moved negatively. But as you can see, it would only take a movement of 1% to liquidate a 100x leverage trade, as 1% of $100,000 = $1,000. Hence, the chance of being liquidated is increased in proportion to the amount of leverage utilized.

The Best Bitcoin Leverage Trading Practice: Awareness

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Unsurprisingly, this increased risk is not a deterrent to using high leverage for educated or experienced traders, as they take this risk into the equation and weigh up whether the chance at significantly increased rewards is worth the potential loss. The key to managing this is obvious (well hopefully it’s obvious), only risk depositing what you can afford losing.

Leverage Trading Risk Management Strategies

At the most basic level, risk can be managed by setting clear entry and exit points using orders like ‘stop-loss’ and ‘take profit’, etc. in accordance with the trader's pre-determined risk-to-reward guidelines. Know at what point you intend to secure your winnings or cut your losses.

A person entering a leveraged trade without a plan and just hoping for the best is naive or reckless and should be aware that they are essentially gambling. Of course, if you are knowingly gambling - that’s ok, but as mentioned, you should be prepared for the worst if unlucky and take it on the chin. In this circumstance, it can not be emphasized enough - never invest more than you can afford to lose!

A slightly more advanced, but very common risk management strategy when margin trading is to ‘hedge’, i.e. open a long position with an opposing short position on the same asset at the same (or vice-versa), with the intention of one leveraged trade’s profits outweighing the losses of the other.

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Best Bitcoin Leverage Trading Platform

PrimeXBT is arguably the crypto community’s favorite margin trading platform, and for good reason.

Other noteworthy margin trading platforms include Binance, Kraken, Poloniex, and Bittrex.

Although PrimeXBT takes the cake, as the only trading platform where all 9 of the crypto majors offered can be traded with up to 100x leverage, hedging on margin trades, and some of the lowest fees (only 0.05% on all assets and assets).

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These crypto majors include: BTC/USD, ETH/USD, LTC/USD, EOS/USD, XRP/USD, & ETH/BTC, LTC/USD, EOS/BTC, & XRP/BTC.

Additionally, PrimeXBT features a selection of the world’s leading financial markets in forex, commodities (Gold, Silver, Oil), CFDs, and Stock Indices - all asset classes are available with the highest leverage offered by any other trading platform.

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