FAQ: everything you need to know a beginner can trade on margin

Want to become cryptomerioides, but you have little money for serious investment? Does not matter, because a newcomer has every right to feel «the wolf of wall street». And this right he provides margin trading, which attracts many inexperienced investors the opportunity to earn «easy money». So you won't have any confusion in the future, we have prepared a short FAQ on the subject.

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What is margin trading?

This is where you use to trade with funds that you loaned the exchange.

A Trader can take control of your quite a lot of capital, thus most of the profits from a successful trade he will receive it. Is reverse — losses from failed transaction will suffer too, he said.

Let's consider a specific example with the dollar. Imagine that you have $ 50. In margin trading you have the right to take control of $ 500 with a leverage of 10x.

In the world of cryptocurrencies there are almost all the same. For example, you want to buy Ethereum in the amount of $ 1,000, but you only have $ 500. Due to the leverage of 2 you can borrow from the exchange 500 dollars and finally buy the desired number of coins.

After some time, their total cost increased to $ 1,500. Are you ready to take profits, so liquidate a position (sell bitcoin) and return borrowed 500 dollars (plus expenses) exchange. Total you have on the hands is $ 1,000 or nearly $ 500 net profit. Easy money!

Oh, there is also the opposite option — the total value of your coins drops to $ 500. In this case, what makes the stock market? It self-liquidates your position (in this case it is long since you bought the air) and takes his $ 500 back. The exchange assumes no losses, but you remain with nothing.

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I heard about short and long positions. What is it?

These two terms characterize the «bet» the trader on possible variants of the price movement of an asset.

«Open long» means to buy the asset at a low price, and then after some time sell it more expensive. For example, buying one bitcoin for $ 6,300 and sold it for $ 7,000, the trader will receive a $ 700 profit. If he uses ten times the leverage, its profit will increase to $ 7,000.

image Source — PETA Latino

«Open short» means to sell the asset at the highest price, and then some time later buy it at lower. In this case, the trader borrows the stock exchange is the crypt, order to sell to open a position. Buying one bitcoin for 6300 dollars (after selling it for 7000$) and he gets all the same one bitcoin + $ 700 net profit.

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What are the risks trade with leverage?

the Volatility of the stock market is usually very high, so the price of your asset (Bitcoin, Ethereum and so on) can change its direction completely unpredictable way in a very short time.

To Lose a bit of money unpleasant, but to lose your entire Deposit — catastrophe. If you are trading with leverage, your risks increase dramatically, and therefore you do not have margin for error. Let us examine in detail an example of a margin call is the nightmare of every novice trader.

Let's Say you are trading with a leverage of 2, that is, for every dollar allocated to open positions, we have one more dollar borrowed in exchange. If the price of the asset on which you have opened a long position, will fall to 50 percent, the exchange will take you the rest of the money, not to be left at a loss.

image Source — GoBankingRates

Margin call can be delayed — quite «pour» the position of additional funds. In very rare situations, this helps, as the price at the last moment can go in the direction of the trader. But in most cases, the result is deplorable — trader «topped up» to a losing position until you lose all your money.

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Trade with leverage someone regulated?

In the traditional markets, Yes, it is regulated by the same standard. In the crypt is not so clear, «rules» may be different on different exchanges.

However, this may soon change. For example, the Japan Association for the exchange of virtual currencies (JVCEA) plans to limit the amount of money that traders can borrow from the exchange. The Japanese want to set a limit of no more than a trader's margin in chetyrehbalnoy size (a leverage ratio of 4).

The Main goal is to protect investors from large losses due to high market volatility.

The good shoulder is limited. For example, the exchange allows OKEx «borrow» the amount that exceeds the trader's Deposit to a maximum of three times. But Kraken offers 5x shoulder. Real ludomani can always visit BitMEX, where you can play with the leverage of 100x. However, often this game ends almost instant liquidation.

How to achieve the best results in margin trading?

Remember, it's your money at stake.

First, margin trading is not suitable for long-term investors and traders who prefer to open positions on a long enough time. The pace of trading is much higher and decisions will have to be faster.

Second, do not start to exchange more money than you accept to lose. Accept the fact that you just sent to BitMEX bitcoin is already not yours, and exchange. If you will prevent serious errors in thetrading, it might return you much more coins. So no need to take out a loan to crypt or to sell for her own house.

image Source — PETA Latino

Third, fight your own greed. Fix the profit and close a losing position. NEVER move stop losses, that would get you there may seem.

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Margin trading is available on all exchanges?

Most exchanges support trade with leverage, but not all.

As we mentioned, traders can visit , , , and . But Binance is not going to give their customers such a service.

image Source — Bitcoinist

Where is the best place to short/long trades Bitcoin? Go to . This exchange is perhaps the only one that will fit almost any trader. Here is everything you need, including a lot of trading instruments for trading several major Althingi.