The benefits of cryptocurrency margin trading are numerous. By allowing for incredible profitability and the ability to trade on the short side, margin exchanges have become popular with cryptocurrency traders of all experience levels.
However, although margin trading has the potential to generate spectacular profits without requiring much starting-capital, it is also possible to suffer significant losses if traders lack adequate caution when selecting and executing trades.
For example, although a trade can generate up to 100x the profit of a standard spot trade, it also works in reverse — allowing traders to lose money far quicker than would otherwise be possible when trading spot. Because of this, it is particularly important that beginner traders start off slow and carefully when margin trading.
With this in mind, here are our three top tips to stay safe when cryptocurrency margin trading.
Start With Low Leverage When Margin Trading
Although it can be tempting to maximize leverage to increase market exposure, doing so invariably brings with it greater risk. After all, at 100x leverage, a market movement of just one percent against the position will lead to automatic liquidation.
Trading with low leverage also has its benefits. For one, it allows traders to maintain positions for a lot longer, making it very unlikely that a long position will be forcefully liquidated following a flash dump, while short positions can be maintained during a flash pump. Since most cryptocurrency markets are notoriously volatile, these transient movements don’t always represent the overall trend — which means low-leverage positions can be maintained until the true trend is shown by the price action.
Overall, trading with low leverage is a simple way for newer traders to get to grips with the market, providing traders with more ‘breathing room’ compared to high-leverage positions. Once a trader feels comfortable with around 2-5x leverage and has a thorough understanding of a platform’s margin call levels, they might then want to begin testing higher leverages to increase the profitability of trades.
Pay Attention to Sentiment Indicators
High-quality cryptocurrency trading platforms will typically provider traders with a variety of indicators that highlight the current market sentiment for a trading pair. These can be used by both beginner and experienced traders alike to make more informed decisions about when to enter the market — and whether to go long or short.
For example, at StormGain, traders are able to see the ratio of long to short positions through the traders’ sentiment section of each instrument. Similarly, the platform provides a clear list of top rising and top falling instruments, which reduces the effort required to find potentially profitable trading opportunities — after all, crowd wisdom can be a powerful tool in any trader’s arsenal.
Besides using the built-in trading indicators available on the margin trading platform, traders can also make use of the myriad indicators available on third-party websites, including alternative.me’s Crypto Fear & Greed Index.
By using a variety of these indicators, it is possible to gain insight into what other traders are likely doing given the market conditions — while helping traders better decide which assets to trade and with what margin.
Understand the Fundamentals of Margin Trading
For any trader to be successful, solid fundamentals are an absolute necessity. However, with a large number of retail investors in the cryptocurrency industry and the ease of access of cryptocurrency trading platforms, there are a huge number of inexperienced traders that skip out on the fundamentals and just dive straight into the market.
Because of this, many beginner traders have poor risk control, are unable to recognize most potential opportunities, and are frequently unable to keep emotions out of their trading decisions. This frequently leaves inexperienced traders holding onto losing positions for far longer than necessary — which can be potentially catastrophic when trading with leverage.
To avoid this, traders should learn the fundamentals of technical and sentiment analysis before embarking on any large trades. Most exchange platforms will provide a wealth of educational materials to users, whereas the popular market analysis suite TradingView has a useful educational ideas section that can help traders get to grips with both basic and more advanced trading strategies and graph formations.
Additionally, traders can check out the BeInCrypto Telegram trading channel, where we provide regular updates on the current market situation— as well as up-to-date market analyses.
The List Goes On
Although these three tips will help most beginner traders increase their success rate and profitability, they are certainly not the only things that should be considered when margin trading. There is a huge variety of useful tools available online to help traders make better trade decisions — but few traders actually take advantage of what is on offer.
As such, we recommend that traders constantly seek to improve, both fundamentally and through the use of the myriad tools designed to help identify opportunities and successfully capitalize them. For example, TradingView’s alerts feature can help to identify trading opportunities when used correctly, while StormGain’s demo trading tool can operate as a suitable sandbox for those looking to hone their skills without taking on any risk.
Disclaimer: This article is not trading advice and should not be construed as such. Always consult a trained financial professional before investing in cryptocurrencies, as the market is particularly volatile. StormGain is an exchange partner of BeInCrypto.
Images courtesy of Shutterstock.