Let’s face it, when it comes to trading stocks or even digital currencies, there is always a risk. With the digital currencies, the risk is higher due to the uncertainty of the marketplace and many other factors. The risk is even more profound when it comes to margin trading or ‘leveraged trading’.
12 Essential Tips For Crypto Margin Trading
Below are twelve tips to help you navigate the turmoil waters of digital investing without losing your shirt.
#1: Start Off Small
Sure, the whole reason you are trading digital currencies is due to the possibility of high returns. However, when you are first starting out, you should start with small amounts of money that you can afford to lose. When you start small, you gain confidence and can afford to experiment with different strategies to boost your return.
Right now, you want to use baby steps with low levels of leverage to understand how margin trading works. Only after you are comfortable with the concept, and have the training and experience a degree of success, then you can add more funds to repeat the process.
#2: Learn About Interest Rates
A big kicker is the interest rates and fees that are associated with digital currencies. Just like a regular loan that comes with fees, you need to educate yourself about the fees that are taxed on with cryptocurrencies. If you fail to miss this critical factor when dealing with margin trading, you could end up losing money despite a successful trade.
#3 Be Mindful On Current Events
To be on your game, you need to learn how to read the news and decipher what is hype, and what could be your gain. A lot of people tend to lose money by investing in a token before a news release only to have that release be negative and the value of the coin drop. When you look at Bitcoin EFT, the decisions can swing the pendulum in both directions. But some investors will anticipate the news as positive before it is even released and end up losing money. So, you want to keep your hear to the ground so to speak, without placing a risky bid on hype and not on factual data that is disclosed. Remember, the phrase, ‘buy the rumor, sell the news’ and you will be on your way to making smart decisions.
#4 Mind The “Squeeze”
It is crucial to mind the liquidation price. This is the price of your position and when it will be liquidated due to several reasons. One of which is the fact that your position could see a price manipulation where it can be terminated and get liquidated. So be mindful of the squeeze and prepare of short and long-term squeezes so you won’t miss an opportunity or a loss.
#5 Stop-Loss Is Your Friend
When it comes to risk management, stop losses will become your best friends. A stop loss helps you by preventing significant losses when a trade goes south. But be careful when using stop losses. If you place them too close to the purchase price, you may end up losing out and have your stop occur before any real gains are seen. If you go too wide, you will put yourself in a situation where you might see heavy losses than what the trade is actually worth.
So treat your friend with respect and give it a little wiggle room. Stop losses can both help or hinder you when it comes to trading. But it depends on how close you play to the chest.
#6 Play The Long Game
The last thing you want is to make all your trades on one day. If you’re going to be successful, you need to spread out your buying options in a matter of days or weeks. This will allow you to see what works and what doesn’t. It will also lower your risk if an investment turns sour and give you time to adjust instead of running the gauntlet in one go.
#7 Support And Resistant Levels
Another thing you need to pay close attention to is the resistance levels and technical support. When dealing with margin trading, price fluctuations may cause prices to reach short-term support and or resistance levels. The levels of resistance exist over different time frames, so you must understand how these work if you want to be successful in this market.
#8 Invest In More Than One Company
Trading is risky no matter which way the cookie crumbles. It is essential to heed “Never put all your eggs in one basket.” This saying should become your mantra as you venture into the world of margin trading. Best investors know that if they want to see the most return they need to buy several positions in different companies to see which one pans out. Putting all your funds into a single trade would be foolish.
#9 Stick With Your Plan
Like any smart investor, you should have a plan that you use when making deals. If you happen to look at only facts provided by the company you are investing in, don’t look elsewhere for the information. Once you have a plan in place, stick with it and never deviate. Of course, if you are just starting, you may need to tweak your strategy until you see returns. Once you start seeing gains, you need to stick with that strategy. After all, if it isn’t broke, why fix it?
#10 Keep A Watchful Eye On Your Positions
There is a commercial where a guy is in an auction. He places his bid, buys the painting, then asks to resell it right then in there. You don’t want to be that guy. When you make a trade, stick with it for an hour or so. Unlike passive investing, you have to keep a watchful eye on what your shares are doing. Buying a position and then letting it run wild isn’t smart when it comes to margin trading. You have to pay attention and be ready to act if things go wrong.
#11 Speculation And The Casino
When it comes to making trades based on hype or other bits of information found here, or it is no different than going to a casino. Sure, the lights are flashy and draw you in, but don’t throw down all your money expecting to win the jackpot. Sure, you might strike lucky every once in a great while, but that kind of investing isn’t what you are going for. You want sound information from reliable sources before you place your bid. So steer clear of the flashy lights. You could end up losing everything on a trade you didn’t research.
When it comes to margin trading with cryptocurrencies, you have to understand that your funds are digital. This means that it is possible for people to hack into a system and steal tons of coins at any given moment. Sure, there are securities in place that prevent this from happening, but still, the possibility is there. Just like you would walk around downtown with your savings sticking out your back pocket, you don’t want all your digital currency on the exchange.
Instead, you should put what you are not using for your trades in what is called a “cold storage” or digital wallet that is offline. This way, you will still have funds waiting in the wings to play with and reduce the risk of being hacked and lose everything.
Final Piece Of Advice
Don’t trade too much. Sure, there is a thrill that goes with trading. There is a high that comes when you see gains. But losing 200 BTC in a single month is more than heartbreaking. So take things slow. As the saying goes, Be the turtle, not the hare.