Bitcoin Leverage Trading For Long & Short Cryptocurrency Positions
Leverage Trading Allows Making A Profit Regardless Of Crypto Market Behavior
Making a profit by trading cryptos has become a favorite way of earning money for a lot of people. Still, doing so requires the knowledge regarding which is the right shot at the time. Those less experienced can still find several exchanges that are offering leveraged BTC/USD futures contracts that might allow for making a profit even during the periods of a bearish market.
For most people, trading cryptos means buying them when they are low, and selling them when their price is high. Due to the instability of the crypto market, these price fluctuations are quite often, and this allows traders to repeat the cycle over and over again. After a while, they become very experienced at doing this, while their profits continue to rise.
While this is true, this is not the only way to make a profit by trading digital currencies. For example, the entire 2018 up until one week ago was extremely bearish. The prices kept going down day after day. Still, this did not stop people from making a profit by utilizing leverage, as well as margin trading. For those who know how to do it, even the negative market can become a profitable opportunity.
What Are Short And Long Positions And How Do They Work?
Those who were capable of predicting that the market would turn bearish after Bitcoin reached $19,600 are perfect for opening short positions. What this means is that those people ‘knew' that the BTC/USD exchange rate would be going down. This is the perfect time to open a short contract in one of the exchanges' margin sections. Newcomers to this concept are advised to begin by using 5-10X leverage, at least until they get used to how this works.
There are some exchanges, like Bitmex, that are offering 100X leverage. This is not advised to anyone but total professionals, who know exactly how the crypto market breathes. Another good thing about this exchange is that it offers a testing ground for trading with leverages in form of an exact copy of the actual website. If you wish to start making money this way, you can always use this testing ground to learn the trade without actually using or losing money.
So, for starters, open a short position within one of the exchanges that are willing to offer this kind of trading deals. Next, you should set up a sell order with the desired amount. You also need to decide on the order type, as well as the price.
As an example, let's say that you think that BTC/USD exchange rate will go down soon. Let's also assume that you have 10 BTC in your possession. This allows you to choose a 10X short position, or less than that, and you will receive a futures contract that is worth 100 BTC.
What this means is that, if the spot price of Bitcoin goes down by only 1%, the value of that 100 Bitcoin will go down by 1% as well. You can then keep gathering profit until the drop reaches negative 10%.
Another method would be to buy 1 BTC for the price of 0.1 BTC. Then, as the value of the coin slides, you short its price. This is a method that would not damage you that much if you lost, and the most of what you may lose is the original margin, with the leverage fees on top of that.
The process is similar for traders interested in long positions, with the only difference being that they are convinced that BTC price is about to rise. They can open a long contract, which would allow them to profit as the BTC price goes up. The procedure is pretty much the same as for short contracts.
There are also additional settings to be made, like the limit, stop orders, the market, and alike. In addition to that, there is also another process called the stop-limit. This process acts similarly to a safety net, that is there to sell the coins before the price drops lower than what you are comfortable with.
Greater Risks Lead To Greater Rewards
Obviously, trading coins like this can be quite a gamble. There are additional costs associated with this method of trading, one of which is the payment of interest on BTC that you have borrowed. After all, you are basically borrowing the exchange's liquidity. Additionally, this type of trading is much riskier than the traditional trades.
Still, people often do it since the rewards are better as well. Leverage trading allows participants to only pay a fraction of the trade's full price. They can even enter much larger positions. They also deal with multiple cryptos, instead of just Bitcoin. But still, it is highly advisable for everyone to properly explore and understand perfectly how this process works. After that, practicing before actually doing it is an even more important part.
In time, after honing your trading skills, you too will be capable of making a profit even when the market goes bearish for over half a year.