In traditional financial markets, traders trade with the trend, regardless of whether it is rising or falling. There is always a profit to be made if you use the right technique. This is something that hasn’t fully caught on in the cryptocurrency market, as many crypto traders typically hibernate in bear markets and simply wait for the next bull run. This is a wasted opportunity.
Fortunately, some crypto trading platforms are now embracing the most successful practices used in forex and equity markets, and are applying them to crypto. The most notable and renowned of which being Margin Trading with high leverage and Shorting, which can be seen with the likes of Bitmex, eToro, and the soon to launch - PrimeXBT. The beauty of this is that with the volatility of cryptocurrency, these techniques often see much faster ROI with only very small price movements.
Many view crypto’s volatility as a negative thing, as it is less predictable, thus more risky. While others see it as an opportunity, as with increased risk there is naturally an equivalently increased reward. The key to managing this is simply realising how much you are willing to risk/potentially lose, in the case of the market turning against your favour and setting strict liquidation orders (stop-loss) in accordance to this.
What is Margin Trading?
Margin trading allows a trader to open a position with leverage. For example – we opened a margin position with 100X leverage. Our base assets and investment of $100 had increased by 10% ($10). Our position yielded $1000 because of the 100X leverage. Standard trades are traded with leverage of 1:1 which would have only returned $10.
As you can see, with only a small amount out at risk you can see incredibly high returns. What a lot of people don’t understand however, is that when utilize high leverage, the small price movement can also go against you, which can cause you to lose your position very quickly. Which is why again you should never trade with more than you can afford to lose.
Obviously if a smaller amount of leverage was taken there is more wiggle room, and less risk. For this reason, inexperienced traders are recommended to start with low leverage of between 2X to around 10X max while developing their skills.
What is Shorting?
To short an asset is to open a position that profits from its price declining. For example, with PrimeXBT - this is done by lending from the platform in order to sell the asset, and buy the same amount back, but at a lower price. The difference in the price is your profit, minus the initial amount which was loaned is paid back plus the commission fee.
For example, you opened a short position against Bitcoin with $100 and 100X leverage at the current market price of $3,600, therefore your position became $10,000 (2.7 BTC). The price fell by 10% to $3,240, you decided to secure your profit and sell, yielding a profit of $360 (0.1 BTC). With 100X leverage, that $360 becomes a profit of $36,000.
Again, if the market turned against you and Bitcoin’s price went up, this would cause you to lose your investment of $100 to the platform.
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As you can see there are several ways for savvy crypto traders to make a profit irrespective of the state of the market, so long as they have an understanding of market trends and technical analysis - otherwise it is of course essentially gambling. You can follow professional traders and investors on TradingView to learn how to effectively read the market and conduct technical analysis, for example the experts from PrimeXBT.
PrimeXBT is launching this month in January 2019, to offer up to 100X leverage trading on both long and short positions. Furthermore, it is the only high leverage trading platform to effectively aggregate liquidity from 12 other leading exchanges to secure the best possible price and deliver instant order execution.
To find out more about trading with leverage and shorting, you can check out Prime XBT’s informative Medium blog, or see the platform’s live demo with aggregated liquidity here.