Margin Trading is a form of trade that brings extremely high profits but is also very risky. In the crypto market, this type of transaction is even more dangerous. But how to minimize the risk and win when trading cryptocurrency margin?
If you are new to Margin Trading, you should start small and be ready to lose. This way you can be more confident in trading to focus on practice, instead of trying to maximize profits.
Also, practice with low leverage to get familiar with how margin trading works. Repeat this until you have mastered and successfully executed a few small deals. You can slowly start to recharge and repeat the strategies that you have used successfully in practice.
Understand interest rates in margin trading
Even though the transaction is profitable, you can still lose money, the problem at this time lies in the interest rate of the loan. All loans have interest or fees, learn to understand interest rates. This gives you a higher chance of success as a professional investor.
Be careful with events and news
Events and news that happen have the potential to have a big impact on the Crypto market. Such as decisions about Bitcoin ETFs, new government regulation, or a hacked exchange. All of which can lead to a significant decrease or increase in the market price.
Always keep an eye on and regularly follow all news related to the market. This is how you can be proactive in risk management and investment strategy.
Pay attention to liquidation prices
The liquidation price is the price at which your position will be liquidated for the complete loss of your own position balance. This means that when the market price hits the liquidation price, the exchange system will immediately liquidate all your money on that order and you lose money. Therefore, you must always pay attention to liquidation prices in transactions.
Intentional price manipulation can affect your position. The main goal of these acts is to eliminate other positions and take liquidity.
The chart above is an example showing evidence of Bitcoin price manipulation. Bitcoin price (circled in yellow) increased to $ 1,200 to remove the short position. After that, the price dropped to around $ 850 to remove the long position.
Always use stop loss
Stop loss is an important risk management tool in margin trading. It helps you prevent a trade loss in case your prediction is wrong.
Be careful to set your stop loss carefully, if it is too close to the buy price, you may lose your opportunity when the market moves in a favorable direction with your position. If you set your stop loss too far, you will suffer a significantly more loss.
Order to buy from time to time
Instead of placing multiple orders at the same time, you should execute them at different times. This method helps to reduce your risk as you can make adjustments if the market has a bad trend. The advice is to execute long / short orders from time to time in small quantities.
Notice support and resistance levels
During margin trading, small fluctuations will cause the price to reach short-term support and resistance levels. These developments occurred over many timeframes. So you have to understand basic technical analysis in order to be able to administer them.
Always have a backup
As a trader, you should never risk betting all your money on a single trade. This can cause you to end your margin trading journey very quickly. Always make sure you have some backup when needed.
Don’t deviate from the original plan
The best investors like Warren Buffett make decisions based on company principles. This is a strategy he has worked with for decades and never differs. Likewise, you should outline a strategy that has proven to be effective. Always stick to this strategy and manage your emotions so you don’t go wrong.
Never trade on speculation
Making trades based solely on personal speculation without research or analysis will be no different than gambling. You can get it right once or twice. But in the long run, this is the action that leads to heavy losses to your portfolio.
Always keep track of transactions
Margin Trading is not like passive investing. You can’t just put your money in and then wait to get it back. Conversely, not investing time in trading can lead to significant losses.
Keep cryptocurrencies safe at all times
In order to trade margin, you must deposit cryptocurrency on an exchange to use this function. Instead of storing all the money on an exchange, you should just leave the amount you need to trade on it. This significantly reduces the risk to the asset, especially in the event of an exchange being hacked. Also, make sure you have some spare money available to keep investing.