Hello everyone. How are you all? I hope fine. So first of all, I warmly welcome you all to season 6 of the crypto academy. This is my first dynamic course of this season.
In this lecture by Professor @reddileep , we learned the basics of leverage trading
Crypto technology brought crypto trading, the value of the digital assets and these assets can be tradeable, this is known as crypto trading. Crypto trading has different methods just like any other trading. Two of the most famous are spot and futures trading. Futures trading is also known as leverage trading. Which is the topic of my assignment.
Leveraged trading is simple. To increase buying capacity, a trader can borrow some money as a loan with leverage on it. Leverage literal meaning is something that will help you to over your strength, upon its maximum value. As it is very complicated, let me elaborate on it with a simple example. Consider you have $100, and right now an asset that you want to have also the same value $100. And you are sure that this asset will pump 100% and double its value in a few days. So you borrowed another $100, which makes your total $200, $100 of your wallet, and $100 what you borrowed. You invested those $200 and it pumps 100%. Now, after a pump of 100%. The total worth of assets you have is $400, it would be $200 if you didn’t borrow the money. This $400 also contained the $100 you borrowed. Now you have to return that money, so now you are left with $300, in which $200 was your profit. If you didn’t borrow the money, the profit would be $100. So that is how you double your profit.
LIQUIDATION
The most important question a new trader who is reading this would have in his/her mind is, what if the trade doesn’t go in our way. So let’s say we have that $200, $100 from our wallet, and $100 we borrowed. And we invested and rather than it pumped 100% and make the invested money double, it starts depleting in value. And deplete up to 50%. That will make our $200 into $100. But we have to pay the borrowed money too, and we are only left with $100, so we must take out that money sells our assets, and pay for what we borrowed. In this way, our wallet will be zero and liquidation occurs. While trading in exchanges, exchanges lend money and do all this while taking their interests and funding fee
FUNDING FEE
The funding fee is the amount of fee that either you can take or give during a leverage trade. It is money that contains interest, and traders either pay it or be paid for opening their trade for a very long time. A very famous exchange, Binance cut and give a funding fee every 8H. If you are in profit you will have to pay it and if you are at a loss you will get it.
Every method has its own advantages and disadvantages, in this question I’m listing advantages of leverage trading
1-LOW FEES
I don’t whether it should be an advantage, but exchanges, mostly central exchanges attract users by putting low fees in opening a leverage trade. And then they cut funding fees which is quite high comparatively. But it’s beneficial for expert traders, those who know their trade.
2-BUYING STRENGTH
It gives users the power to have more buying power resulting in, trader, who are very good traders but have not good capital earning more profits than he/she deserves. Mainly in exchanges, you can pump your account from 2x to 100x. Meanwhile, in Binance central exchange, you can pump it to 120x. That’s a lot of buying strength.
3-LONG AND SHORT POSITIONS
Leverage trading enables traders to open positions on both sides of the market. In simple words, trader either open buy positions or either sell positions, which is long and short respectively.
4-BENEFICIAL FOR SCALPERS
This leverage trade is very good for scalp traders. For those who don’t know, scalp trading is a method in which traders made a profit of 1% or 2% or even less than that or more in a very short spam of time. If they do leverage trading they can multiply their profits easily. As the zig-zag movement of price can be dangerous and have chances of liquidation
5-ADDING FUNDS
In the case of zig-zag upward movement of price, the expert traders, who open their positions for a long time, can also add funds in one mode of leverage trading and dodge the liquidation before running through the big trend in their favor and gaining lots of profits.
1-LIQUIDATION
The first and foremost disadvantage of leverage trading is liquidation which can wipe out all your money from your wallet, money that earned hard. Therefore for new traders, it is not just advice able but necessary for them to stay away from futures trading until they know the price actions, indicators, and different strategies.
2-FUNDING FEE
As the opening fee of trade is low but the funding fee is very high in case the trader wants to open a trade for a long period of time. This money is interest-based and also wipes out your account in silence.
3-ADDING FUNDS
I may mention in advantages that adding funds is an advantage, but it is for the experienced traders, traders who had it coming and still risked it for better outcomes. But for a new trader, who hadn’t seen it coming, adding funds may just deplete what he had added too.
4-RISK MANAGEMENT
Though risk management is necessary for any business let alone trading, you must be highly skilled when it comes to risk management if you are a trader of leverage trading, why? Because a hit from it will be a fatal hit and may end up badly. Therefore never ever invest that money in leverage trading that you don’t want to lose.
BASIC INDICATORS
Indicators are just tools that over-show something, at expense of other thing. Therefore there are many indicators according to the different settings of different kinds of trades. Some suits stock, some suits crypto. Just like this some suits spot and some suits futures. Here as the respected professor asked I will talk about indicators that suit futures trading.
For Leverage trading, one thing is to be noted, if you have a low budget in your wallet and high leverage, you can not afford that the asset will lose a price. In that way, your liquidation would be very near. So how to dodge it? Well, the simple way is to trade in trend, a short trend. And if not in trend then in the oscillating market, where you know from which price area, the price will come down and from which price area price will go up. Or you can trade with the people, you should know that how many people are investing in that current market, and how many are leaving it.
These all points are also important for scalp trading and indicators which can be used for this are, Parabolic SAR, RSI, MACD, EMA, etc which are trend catchy and help in the prediction of the market in a short time spam. Moreover, you can use Heikin Ashi candles instead of traditional price chart candles which are basically the candles that catch trends.
Here I will explain the use case and define every mentioned indicator.
1-PARABOLIC SAR
In Parabolic SAR, SAR stands for Stop And Reverse. As its name stands, it indicates a signal when price stops the current trend and changes the movement of price trend into reverse direction. To indicate it, this indicator uses dots. Dots above the price candles chart is the signal of a downward trend, similarly, if the dots are below the price candle, is a signal of an upward trend. Let me elaborate on it pictorially.
In this above screenshot of BTC/USDT from Binance it is clearly can be seen how parabolic SAR gives signal. Upon its this speciality that it gives signal of current trend, even for a short spam of time it is very loveable and in good books of leverage traders, as they can’t afford any zigzag movement.
2-RSI
RSI stands for relative strength index. As it name stands, it tells the strength of buyers and sellers in the market. In short time trading or in scalp trading, RSI is one of the best indicator. It just tell you the current interest of other traders in the market. It contain a line that oscillates between 100 and 0. With the medium range of 50. In general the buy signal from this indicator is when the line is below 30. And the buy signal is when line is above 70. Let me elaborate it pictorially.
In this screenshot of BTC/USDT of Binance exchange app you can see that how RSI marks the overbought and oversold condition of market. In leverage trading, where trader can’t really afford of movement of price away from its prediction, it is a very good indicator to use.
3-MACD
MACD stands for moving average convergence divergence. As it name stands, it is with moving average which operates around convergence and divergence of market. Convergence and divergence tells us how much dollars are coming in and going out of the market. In other words it tells the volume with a moving average oscillating around it. When ever its line passes from the middle line, and the volume starts to grow at the side of the direction of line it generates signal. Let me elaborate pictorially
In this screenshot of BTC/USDT we can see that how MACD gives signal with change in volume, moreover it is also can be seen that how good it can work with Parabolic SAR.
4-EMA
Stands for exponential moving average. It is just a moving average but a fast one. It’s length depends on trader, but what I think that can be good for scalping is 20-30.
Buying and selling is very easy from it, when ever price penetrates it, its a signal that market will go in the same direction where price is going. Let me elaborate it pictorially.
In this above screenshot you can see how perfectly it is working with parabolic SAR. For futures trading it can be use for generating good buy and sell signal. Though the EMA i showed has its standard length of 9. You can change it according to your own strategy.
In this question i will use above indicators and developed a strategy. I will use heikin ashi chart as these are the very best not just for scalping but for checking trend.
It looks like this.
From this encircled area in iPad application of tradingview one can apply it.
Moreover as I am going to apply Parabolic SAR , EMA and RSI for buy or sell trade, for futures their required parameters are;
Parabolic SAR: It is the main indicator, the trade signal starts from it and confirmed by others
RSI: For leverage trading, line above from 50 is a confirmation of signal of short meanwhile below 50 is confirmation of long.
EMA: It will be use as to confirm either the signal either after the opening or before opening of trade, depends on that time.
It is a buy signal when dots appeared below the price, and its confirmation is when RSI is below 50 moreover when the price moves through EMA is the double confirmation.
In this above screenshot of BTC/USDT we can see that how all the indicators and everything worked very well for signals.
Its a sell or short signal when dots appeared above he price, and its confirmation is when RSI is above 50, moreover when the price moves through EMA is the double confirmation.
In the above screenshot of BTC/USDT we can see how all the indicators and everything worked very well for signals.
In this last question professor asked us to perform a trade. So here I will perform a demo trade then multiply my profit with the leverage i would take.
I will open a trade of $10 with 2x leverage, that will make it $20. In the end amount ROE+Invested amount i will deduct $10 and my profit will be there.
For demo trade I will be using Tradingview application.
As you can see in this above screenshot i have done a demo trade that started after the confirmation of signals, though it would be better if I’d just started it at the signal of parabolic SAR it would be more profitable. I have close the trade when Parabolic SAR indicated a reversal in the trend.
In the trading screen shot you can see I opened a trade a bit late after the signal from parabolic SAR still got the profit. The signal from RSI and EMA is also followed by it. And the profit upon $20 is around 5%, I’m not accurate.
As we assumed that only $10 is from my wallet and $10 is what i borrowed by the leverage of 2x, you can see that the profit would be around $0.31 if I hadn’t borrowed the money. In this way leverage trading can help us in gaining big chunks of profits from the market.
CONCLUSION
Crypto market, because of its volatility is full of interests of people, therefore it is an excited place to earn too, but only for those who do it professionally, through learning and analysis. In this market there’s a method called leverage trading, it is useful and also has disadvantages. Anything like leverage trading is useful only for those who know how to use it and waste for those who do it like gamble, and gets attracted by its shinning. There are certain strategies that run through leverage trading and work with it. Which can make this method one of the best for gainers of this market.
THANK YOU
ps: All the pictures have been sourced accordingly. The grammar was checked from grammarly.com while the markdowns have been done according to the Markdown Styling Guide.
Cc;
professor @reddileep
regards,
@abdu.navi03
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