For those of you who want to get involved in the world of Bitcoin trading and other Altcoins, you must understand very well the terms in trading itself. One that needs to be well understood is margin trading in Bitcoin and Altcoins. Following the review.
In this article, it will be explained simply about the concept of margin trading in Bitcoin and Altcoins in markets such as Bitfinex, Poloniex, Bitmex, and so on. For traders who have limited funds to trade Bitcoin and other cryptocurrency, there is a Bitcoin margin trading option that will affect your trading / investment.
With margin trading Bitcoin & Altcoins has the potential to increase the amount to be invested without actually having assets. Simply put, with this system you can trade / trade with strength many times compared to the capital you have.
It is important to mention that Bitcoin & Altcoins margin trading is not recommended for everyone and has a very high risk.
Let's get started: What are Bitcoin & Altcoins Trading Margins?
Bitcoin & Altcoins margin trading allows traders to open positions with leverage . For example - you open margin positions with 2X leverage. Your basic assets have increased by 10%. Your position yields 20% due to 2X leverage. Standard trading is traded with 1: 1 leverage.
Margin trading is possible because of the lending market . Lenders provide loans to traders so they can invest in larger amounts of coins, and lenders benefit from loan interest.
In some exchange cryptocurrency exchanges, such as Poloniex, users provide loans for the margin market and the exchange itself also provides them.
For example, on the Poloniex exchange, anyone can lend Bitcoin or Altcoins and get benefits from interest on loans. The main disadvantage is that the coins must be in an exchange wallet, which is far less secure than a cold wallet .
Bitcoin & Altcoins Trading Margin Costs and Risks
As mentioned above, the cost of margin positions includes paying interest for coins borrowed (whether to the exchange or to other users), and fees for opening positions on the exchange.
On the one hand, there are opportunities to get more profit, as well as on the other hand the risk of losing more.
The maximum risk that can be lost is the amount that we invest to open a position. This level is called the liquidation value. Liquidation value is the value at which an exchange will automatically close a position so that you will not lose any loan money, and only lose your own money.
A Simple Example of Bitcoin & Altcoins Trading Margin
If we talk about standard trading, leverage is 1: 1, the value of liquidation is when the position reaches zero. With increasing leverage, liquidation will be closer to the purchase price.
For example, the value of Bitcoin is at the price of $ 1,000, you buy one Bitcoin (Long / Buy position) with a leverage of 2: 1. Your position fee is 1000 USD, in addition we borrow 1,000 more US dollars.
The liquidation value of the position will be slightly above 500 USD - because at that rate you lose the initial funding of exactly 1000 USD plus interest and fees. Margin trading can also fight the market, you can also short positions (sell) with leverage.
Examples of Bitcoin & Altcoins Margin Trading Cases Are More Detailed
You have a capital of 1 Bitcoin at a price of BTC at $ 400. With margin trading, you can trade 3 times the initial capital owned so that 3 x 1 BTC = $ 1200
The terms known in margin trading, namely Buy (Long) and Sell (Short) positions.
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- Margin Sell: You borrow BTC and then sell it. When closing a position, you repay the loan and get a sales difference which is referred to as profit
- Margin Buy: You borrow US Dollars and buy BTC. When closing a position, you take the difference as profit.
Some Differences Between Order Types:
Here are some types of orders that also need to be understood in connection with the mentioned trading conditions.
- Limit : An order to sell or buy at a certain price. For example, the current price is 1 BTC = $ 450, you want to buy at $ 449 then you will place a limit order at $ 449. If the market price reaches $ 449, your order will be executed.
- Stop : An order to close a position / sell when the market price has reached a certain number. For example, the current price is 1 BTC = $ 450, if the price has reached $ 445 you want to sell Bitcoin and STOP a loss at that price. If the market price has reached $ 445, then your STOP order will be executed.
- Shorting : You want to set the STOP number above the current market price. For example, the price of 1 BTC = $ 450, if the price reaches $ 455, you want to close a STOP order and STOP a loss at that price. If the price reaches $ 455, your order will be executed.
- One Cancels Other (OCO) : You can place two orders at once. If one order is partially executed, another order is automatically canceled. OCO orders can combine limit and stop orders. This option can help you want to put up at what price you want to profit, at the same time at what price you stop losing.
For example for an OCO order, the current price is 1 BTC = $ 450, you put a STOP loss at the price of $ 445, and at the same time place a limit order at $ 460. If the market price reaches $ 445, the STOP order will be executed and the order at $ 460 will automatically be canceled. Conversely, if the market price first touches $ 460, then orders at $ 445 will be automatically canceled.
For the record, if you add one order manually, then you must cancel the other order manually as well.
Example of a Long Position (Buy) Case:
You place a Limit Margin Buy order at $ 500, then place an OCO Limit Margin Sell order, with a price of $ 540 as a Limit and an OCO Stop at $ 450.
With this option, you will benefit if the price goes up to $ 540 and you lose if the price is DOWN below the $ 500 level with the STOP limit of your loss at $ 450.
Example of a Short Position (Sell) Case:
You place a Limit Margin Sell order at $ 421, then place another OCO Limit Margin Buy order, with a price of $ 411 as the Limit and the OCO Stop at the level of $ 431.
Through this option, you will get a profit if the price goes DOWN to $ 411, and vice versa will suffer a loss if the price RISE more than $ 421 with a stop limit for losses at the level of $ 431.
This is the difference with ordinary Bitcoin trading without using Margin Trading. If you use it, you will be able to benefit in two conditions, namely when the BTC market price is in an UP and DOWN trend. By placing a position in accordance with your analysis of current BTC market trends.
Tips for Trading Bitcoin & Altcoins Margins
1 Consider Risk Management
When doing margin trading it is important to consider that you have clear risk management rules, be careful of excessive greed.
Calculate the amount that you want to trade, considering that it can disappear completely. Set a clear level for closing positions, take profit or stop loss.
2 Carefully analyze
Crypto coins are considered assets with high volatility. By doing margin trading, crypto currencies will double the risk. Therefore try to make short-term trading leverage positions. In addition, although daily costs or margin positions can be ignored, in the long run these costs are very significant.
3 Beware Extreme Movements
Crypto trading sometimes has extreme fluctuations that occur in both directions. The risk in this case is that the position will touch your liquidation value.
That can happen when leverage is relatively high so the value of liquidation is relatively close. In fact, you can take advantage of this two-way position and try to set a target closing position, hoping that position will touch it, you get a decent profit and then return to the previous price.
Good luck, and hopefully useful.