Trading with margin does not have to be scary or complicated.
When you think of margin and leverage you may think of scenes from tron or imagine the risky traders from Wolf of Wall street and think that's not for you. I will show you why high leverage trading can keep your stash of Bitcoin (or steem) safe from the counterparty risks attached to keeping all your coins on an exchange.
Using leverage such as 10x margin simply means that you deposit, for example 1 Bitcoin and trade with a value of up to 10 Bitcoins. If you go "long" and the price drops by 10% you lose all your money and get liquidated but if the price goes up 10% you gain 100% on your initial deposit.
So why would you want that risk?
Ok first off if you do not want any trading risks just keep your Coins in cold storage. enough said.
But if you day trading and keeping an eye on things margin trading can be a successful strategy. You can also use it to hedge your dollar value of Bitcoin without getting out of Bitcoin incase of a moon shot. I will go through these two trading options with you.
The hedge for moonshot position
This is one of my favorite trading positions to be in personally and even made me some money during this bfx fiasco. I only have a small amount of Bitcoin anyway (under 5BTC.. But for me that is a lot of money) and so I have 0.5 BTC in Bitmex trading account and the rest on a Trezor and go mostly in and out if this position.
- Place 10% of your bitcoin holdings on an exchange that offers 10x leverage (check the rates & fees!)
- Place a short position covering the dollar value of your total bitcoin stash (hot+cold)
- Set up price alerts on your phone (for 5% swing in either direction)
How this trade works is that if the price drops you will still end up with more BTC covering the loss and maintaining your USD value. You can hold out this trade but usually there is a bottom and you can pull the trade once the market swings and make some profit on the way up with those extra coins you now have.
If the trade goes sour and the price starts rising radically your position will get called at 10% gain in BTC price but your USD value will still be the same. If it is a real bull run you can ride it till the top or place more shorts at this point to maintain your usd value at this BTC price.
You may lose on fees and some say a simpler trade would be to just sell your entire stash to USD but this post is about minimizing counterparty risk while still having the opportunity to make money on break outs.
The altcoin game
You heard everyone is cashing in on this ETH/ETC thing and want some of that action? Margin can help you trade these without risking your cold storage as well. Simply use BTC and take small high leveraged positions in these alts in either direction.
Be careful with these as margin calls are common as the price can swing more than 10% in less than an hour on some occasions and you will not be hedged like in the first scenario.
THE ANALYSIS AND DISCUSSION PROVIDED IS FOR YOUR EDUCATION AND ENTERTAINMENT ONLY, IT IS NOT RECOMMENDED FOR TRADING PURPOSES. INFORMATION OBTAINED HERE SHOULD NOT BE TAKEN FOR PROFESSIONAL INVESTMENT ADVICE.