Margin trading is an excellent trading strategy for boosting portfolio growth. Trading on margin means that traders can have a whole amount invested that’s higher than the total value of their trading account. This trading approach allows them to trade while depositing a portion of its full amount. In essence, if you start doing crypto margin trading, note that the more you have invested, the higher your potential returns corresponding to your account size.
It’s also worth noting that it’s nearly impossible to become a profitable cryptocurrency margin trader if you don’t have proper strategies. For that reason, if you’re a beginner in this type of trading, consider reading these details to know everything about margin trading and its common strategies.
In addition, here are some essential tips to help you succeed in crypto margin trading:
While it can be tempting to increase leverage to gain market exposure, this approach always comes with more significant risks. Conversely, although it also comes with risks, trading with low leverage has many advantages. Notably, it enables traders to hold positions for much longer, making a long position unlikely to be liquidated after a flash dump. Besides, because most cryptocurrency markets are volatile, these transitory movements invariably don’t define the overall trend. Thus, traders can maintain low-leverage positions until the price action reveals the actual trend.
Generally, starting to trade with low leverage is a suitable way for newer traders to deal with the market. So, if you’re a new margin trader, this approach provides you with more breathing space than trading with high-leverage positions. Eventually, once you feel comfortable with about two to five times leverage and have a comprehensive understanding of a venue’s margin call levels, you may start considering testing high leverages to maximize trade profitability.
As you’re taking a long or short leveraged position in any cryptocurrency, you’ll likely notice that every trader has something to say regarding where the market is heading. However, note that there’s a difference between having opinions about the market’s direction and being caught up in fixed beliefs. Take this scenario as an example: After conducting the necessary technical analysis, suppose a trader decides to go with long Bitcoin due to an idea that it’s about to bounce back to a long-term support level. Indeed, the bounce comes, but the problem is that it bounces off at an unconvincing volume and rapidly loses strength.
Accordingly, one of the best ways to succeed in crypto margin trading is to trade with an open mind. If you’re an adaptable trader, you’d recognize such a situation. Moreover, you’d consider cutting your long Bitcoin in small profit to stand back and let the price grow even higher. Because any scenario can happen, it would be better to prepare for any situation that will appear in the foreseeable future.
A stop-loss order is an order that triggers a market sale or purchase once a specific price level is reached. Because the primary purpose of trading is about profitability and winning 100% is nearly unattainable, setting up a stop-loss is a good idea. By utilizing a stop-loss, you can foreseeably account for possible losses and avoid complete liquidation from an anticipated spike in price.
Consequently, using stop-loss orders is one of the best practices you can do to avoid losses and a margin call into your margin account. It allows the stockbroker to sell your shares quickly once it drops below a specific price level. A stop-loss is an ideal tool to help you cut your losses and avoid losing all your money while margin trading.
- Stick To Your Trading Plan
Make sure you have a trading plan before you begin trading. Note that crypto margin trading requires emotional discipline, so if you start trading with an excess of emotions, you risk losing all your money. Hence, it’s critical to ensure you don’t get too effusive while setting up a stop-loss even though the position isn’t following your strategy. Additionally, if you have carefully outlined your trading plan, it’d be better to stay patient and stick to that since the market can turn around at any given moment.
Being cautious of related news and decisions is always an excellent approach when you’re trading. This is because these noteworthy events can potentially affect the market while you’re holding a margin position. For instance, several positive news on project development or partnerships can reverse price action and make a descending movement into an ascending one. Moreover, investors may choose to buy more Bitcoin on margin in preparation for positive news, which can cause a price increase even before the actual announcement on the news.
Overall, crypto margin trading is a powerful trading strategy that lets you make significant profits. However, it also comes with high risks, including rapid losses. Therefore, it’s crucial to study this trading strategy to get a comprehensive understanding of all associated pitfalls and things you should do before starting on your crypto margin trading journey.