Who would want to learn trading and lock in some potential profits along the way?
If your answer is yes, let's get right down to it with an excellent example!
In part 1 of this blog, I'll show how to go long on Bitcoin on margin and leverage.
Shown below is a trade on BitMEX but any derivatives exchange platform should come in handy!
Before that, some Price analysis for next week:
I personally believe once Bitcoin cash "altcoin" is made available "for free" ( air drop ) on exchanges such as Karken, wherein you can trade BTC/USD and BTC/EUR, I'm expecting at-least a fraction of the crypto community ( including some large Chinese exchanges with access to capital : see image) to convert Bitcoin cash ( Ticker symbol : BCH, BCC) into Bitcoin and then either cashout to Fiat through Karken or invest in Alts.
Due to an increased flood of people trying to convert BCC to BTC, the prices may shoot up temporarily followed by a market correction. (There's also the Segwit lock in on Aug 11th and Activation on Aug 25th to consider).
"Under the hypothesis" that the prices may shoot up, I've shown how to go long on Bitcoin.
This is how I went about setting my Bitcoin long trade:
The current price of BTC is around $2750.
Lets round it off to $3000
The balance in my margin is $2000 ( 0.7 btc )
The maximum I can lose ( upon liquidation ) is $2000 the entirety of my amount.
At 10x, I can afford to lose $200.
I decide to close out all my positions when the bitcoin price falls to $2500 ( so that I allow for a maximum worst case scenario drop of $200 from around $2750 to $2500 and I am in a position to choose to close my positions rather than being margin called and forced to close instead)
Given that being liquidated at $2500 is the "sole criteria", the question now becomes whats the maximum profit that I can make?
Re-confirming...I've mentally set the liquidation price at around $2500...
A liquidation price of $2500, is a fall of about $200 from current price of $2750.
The contract value I need to place an order of - in USD, is some random number, I promptly fill up in as $3 the input text box (circled in yellow).
For confirmation : Let's do a recalculation:
Order value =$3 .... $3 is 0.0001 times price of $3000 bitcoin = 0.0001 BTC (ticker symbol XBT)
With 10x leverage, the effective size of this order becomes 0.001 BTC (ticker symbol XBT) which is $30.
A higher leverage or a higher order placement would leave lesser room for a price drop before liquidation.
You could give this a try and play around with the 0 to 100 leverage slide bar, and also entering numbers ( of higher price denomination each time) into circled in yellow text box all the while viewing the liquidation price changing in real time.
Actual order that I placed : for predetermined $2600 liquidation price, with current btc price hovering at $2850 :
Steps:
- I slide the bar and find that the max leverage one can go is upto 10x
( If I want to leave a room of $200 price drop, which at 10x is $2000 - the entire amount in my account balance. Anything more than 10x will make liquidity price higher than $2600 leaving much lesser room for a price drop ... For example, at 100x,which is the max allowed leverage, I would need the price of bitcoin to drop only $20 for me to get margin called and lose everything in my account balance ) ..
- with leverage fixed at 10x, the max I am willing to bet being 0.7 btc in the account balance, I am able to buy upto
0.7btc *10 = 7btc = $19k. I place an order of 19k contracts as shown in the image!
The same logic holds for going short as well on margin and leverage.
Happy trading!