What does leveraged trading in the cryptocurrency circle mean? How to use leverage to trade in cryptocurrencies? (Must-read for newbies)
Many people have heard Archimedes' famous quote about the fulcrum when they were young: Give me a fulcrum, and I can pry the whole earth. Today, there is also such a "lever" in the Bitcoin market. In the eyes of professionals, it is a weapon to sweep the market. So after we enter the market, how should we use this leverage that is different from the usual cognition?
1. What is leverage, contract?
Leverage generally uses a small amount of funds to invest several times higher than the original price.
A contract is generally an agreement to deliver/accept a certain asset/product at a specific price at a specific time. In the cryptocurrency circle, there are many types of contracts such as three months and six months, and there are also contracts in the mining circle, ranging from one month to perpetual contracts. From a literal understanding, the former belongs to investment, and the latter belongs to agreement.
Contract trading is a common name in the cryptocurrency circle. In fact, the so-called contract trading is futures trading.
Futures trading is a mode of forward trading of trading products. Compared with spot trading, futures trading has two major characteristics. One is that it can be long or short, and can make profits in both directions; the other is that it can be leveraged, and small profits can be made.
These two characteristics make futures trading more speculative. Being able to go long or short allows investors to buy up or down, and have more investment strategies. The emergence of leverage has amplified the fluctuation of currency prices.
2. What does leveraged trading mean?
Leveraged trading is to magnify the principal several times, make a larger investment with a small amount of funds, and achieve a small profit with a big profit. But at the same time, you must bear the risk of doubling the loss that may be caused. Due to the large fluctuations in the price of digital assets, please be sure to fully understand the risks of leveraged trading and use it prudently.
3. How to use leverage to go long and double the profit?
Suppose you go to the gambling table with 100 yuan and bet on the rise of Ethereum. When Ethereum rises by 10%, your one yuan becomes 110, a 10% profit. At this time, someone tells you that there is a leverage service that can help you turn your bet into 1,000 yuan, which is a 10x leverage. At this time, when Ethereum rises by 10%, 1,000 yuan becomes 1,100 yuan. You pay back the 900 yuan you borrowed, and you have 200 yuan left in your hand, 100 yuan principal, 100 yuan profit, and achieve a 100% return.However, if you bet wrong and Ethereum falls instead of rising, falling by 10%, your 1,000 yuan bet will become 900 yuan, and this 900 yuan is borrowed, so your principal will be gone.
4. What are the risks of leveraged trading?
Leverage uses less funds to achieve the possibility of obtaining greater returns. But if the wrong trading direction is judged, the loss will also be magnified year-on-year. Therefore, ordinary traders try to avoid high-leverage heavy-position trading to prevent the occurrence of liquidation or even liquidation.
5. How to reduce the leverage risk rate?
1. Use leverage multiples reasonably and control positions.
2. Stop profit and stop loss in time, and close positions spontaneously.
3. Add margin in time to ensure that the ratio of total assets/leverage amount is greater than 110%
6. Classification of leveraged trading
In fact, leveraged trading in the cryptocurrency market is essentially no different from leveraged trading in the foreign exchange and stock markets. They are all derived trading tools. The leveraged trading we usually talk about is divided into long and short.
Go long
If investors think that the future market will go up, they can buy a certain number of buy orders at the current price and sell them after the price rises to earn the difference.
Go short
It is the opposite of going long.
VII. What to pay attention to when doing leveraged trading
1. Light position trading
If you want to reduce risks, you must trade with a light position. If you trade with a heavy position, a slightly larger market fluctuation may cause a position explosion. For a small position, even if you cannot make up for it in the first time, you can control the loss within an acceptable range.
2. Strict stop loss
You must set a stop loss for each order, which means that when your current transaction loses to the set stop loss point, it will automatically close the position and stop trading, instead of losing money all the time.
3. Short-term and ultra-short-term trading
Long order time means increased risk, because in the cryptocurrency market, we never know what will happen in the next second. For example, closing orders within 30 minutes and doing short-term and ultra-short-term trading can reduce risks. When the market fluctuates greatly, huge profits or losses may occur, which is a taboo. Don't take risks. Steady profits are the best way.
4. Enter the market at the right time
Most investors believe that the current cryptocurrency market is not stable.At present, investment in the currency circle means certain risks. However, the risk of leveraged trading is higher than that of ordinary cryptocurrency investment. Therefore, when conducting leveraged trading, try to choose short-term investment as much as possible to avoid staying in the trading market for a long time. The longer the time, the higher the cost will be.
5. Seek high price fluctuations
Pay attention to the price fluctuations in the market. When the market price fluctuates more, the price will rebound rapidly. By analyzing and evaluating the K-line trend, predict the turning point of market price fluctuations, pick the right time, and conduct leveraged trading. At the same time, when entering the market, ensure that there is enough data and analysis to support your decision.
6. Ensure normal cash flow
At any time, you must keep living expenses, have spare money on hand, and be able to guarantee daily expenses, so that you can hold the currency with peace of mind and welcome the bull market with peace of mind. In reality, there are many people who fall before dawn because of various problems that need to be cashed out. I hope everyone will not become such a martyr.
Life is full of changes, and the world is cold. You may still be a millionaire this morning, but you may be penniless in the afternoon. Yesterday's downtown loser may become a tall, rich and handsome man today.
Some people say that contracts are as fierce as tigers, eating people without leaving any bones. This is true here. Until your principal is lost, how many people have lost everything in contracts!
People who play contracts have gambler mentality. They make money today and want to gamble tomorrow, whether to kill time or to find excitement. If you walk by the river often, you will get your shoes wet.
It is easy to become a gambler, but it is difficult to quit gambling addiction. The excitement of the casino is exchanged for so much money! For the sake of family harmony, social stability, and long-term happiness, please stay away from contracts and cherish our hard-earned happiness. It is difficult to find a harmonious feeling if you lose it.
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