November 30, 2020

CEX.IO company blog | Leveraged trading: pros and cons. Part 2

In the previous post, we began to consider the topic of margin trading - what is it, what is it Advantages and disadvantages.

Let's look at what other elements you need to consider in order to effectively use this method of trading?

Use leverage (leverage) to maximize profits

The use of margin trading is a way to increase the return on development with cryptocurrency assets: the higher the value of open positions, the greater the potential profit.

For example, you opened a deal to buy BTC for $5000 with a 1:10 leverage and a $500 deposit.The price of bitcoin for the day increased by 2%.This means that your profit will be$100 a day, while using only your $500, the profit would be $10.

The ability to minimize risks (using hedging)

First of all, it is important to understand that hedging isthis is not a way to make money on the crypto market, but an opportunity to keep a deposit in changing market conditions. Hedging is useful for leveling exchange rate risks in the present, as well as fixing the rate for the future.

How it works? For example, you are expecting a cryptocurrency payment, but you are not sure about the speed of sending and receiving funds. If the user wants to “fix the current rate” until funds are received, he can hedge the rate now (by opening a position), and at the time of calculation, close the position, eventually not losing, but not making money on the price change.

Opening a short position on the margin platformCEX.IO Broker fixes the rate for selling a coin that the user has not yet received. Further, when the coin is received, you need to sell the asset on CEX.IO and close the position on CEX.IO Broker. As a result, the user will be left with an amount equal to that which was at the time of opening a short position, and not at the time of the sale. Here's a little trick.

Using cross and isolated margin

Before making any tradeoperations, you need to carefully study the platform. Some platforms use both cross and isolated margins. In the case of an isolated operation, the profit or loss from one operation is not transferred to another. In the case of a cross - the positions (or accounts) are linked and can cover the losses of one position with the profit of another. Consider these conditions so that they do not bring you unexpected consequences.

In general, cross and isolated margin isa kind of "adult" risk management without complicating trading This functionality opens the trader a certain space for trading maneuvers, makes trading more flexible, provided that the user understands how it works.

CEX.IO company blog | Leveraged trading: pros and cons. Part 2

The possibility of earning both on a rising and falling rate

Contract-based margin tradingfor the difference in prices, allows users to open positions both in growth and in decline, which makes it possible to earn both in bullish and bearish markets. If the price moves in the direction of the trade, the trader makes a profit.

Margin trading varies from platform to platform

There are platforms for margin trading onbased on Contracts for Difference, for leveraged trading for perpetual futures, and for trading bitcoin options.

In each of the above cases,trading with borrowed funds, but the principle of operation and profit is different for each type of trading. Even in the use of leverage, there are differences: some platforms lend their own funds, and some offer users to lend to other users themselves.

Liquidity

Marketplace liquidity is whatforms the quality of trading and its cost. Lack of liquidity on the platform can seriously affect the potential profit from margin trading. Some platforms make efforts to provide liquid order books and partner with other exchanges or liquidity providers. For example, the team of the CEX.IO Broker platform openly declares about using the liquidity of the largest trading floors on the market, thereby guaranteeing users the execution of both small and large orders.

Many platforms only work with thatliquidity provided by users within the platform. In this case, the execution of a trade operation may take longer and the price may be less attractive. This does not mean that such trading conditions are worse, but they can mean a completely different trader's experience when interacting with the market. It is important to understand how liquidity works in order to fully realize the possibilities of margin trading.

Read the first part of this material here.

If you have experience with margin trading, we invite you to share your impressions and thoughts in the comments!

If you are just starting to get acquainted withmargin trading, then visit us at CEX.IO Broker. Our platform provides an abundance of opportunities for convenient leveraged trading - follow the link and start trading!