- A trader can lose everything in a single trade with a small drop in the price.
- The volatility of the cryptocurrency market increases the risks.
- Bitcoin traders in long-term entities prefer margin trading because of the huge profits accrued.
In the crypto market, margin trading refers to the process where the investors buy more stocks than they can afford to. It is also commonly practiced which is referred to as intraday trading and the services are provided by different stock brokers.
Most Bitcoin traders in long-term entities prefer margin trading because of the huge profits accrued without having to stare at order books all day. It enables one has the potential to double or triple one’s holdings. However, trading Bitcoin and cryptocurrencies aren’t that easy and hard at the same time. Once you get past the learning curve, then you are good to go.
Costs and Risks of Margin Trading
Trading on exchanges is one of the most significant things one has to have the know-how. However, the process is relatively the same on any exchanges:
It’s easy to lose your initial deposits after failing to apply the appropriate margin trading strategies. The use of long-term cryptocurrency investments to margin trading is not advisable because losing your hard-earned resources can get lost quickly.
The interest is paid for the borrowed Bitcoins (whether to the exchange or the users) together with fees for opening a position for the exchange, all this is the cost of the margin position. As the chance of earning more increases, so does the risk of loosing more.
Bitcoin’s trading sometimes experiences fluctuations in price that occur in both directions, sometimes it goes deep touching the liquidation value. This could happen where the leverage is relatively high, so the liquidation value is relatively close.
The Bitcoin shorting means that there will be a drop in its price, which will enhance the profit of trading against Bitcoin. It will affect the price to a point of non-redemption soon.
The funds the traders are using in the margin trading is not their(borrowed), which they could lead to a close of trade in loses.
Margin trading is a tool to make quick profits in the short term. If leverage trading is used properly with risk management, the portfolio will be increased in large volumes. One has to understand the clear rules of risk management. Taking to account the amount to be put as a risk and keeping in mind that it can be lost. Always start small in the beginning stages, it’s important to start with small amounts of money that you can afford to lose.