Let's get in more detail with an example on how Spot Trading and Future Trading with cross margin defer in terms of risk and rewards.
Let's say you have $200 USDT in your Trading account and you open long positions for #btc and #eth in you spot trading account. If the price of one of the coin goes down and you want to do Dollar Cost Averaging (DCA), you will have to sell the other coin or dip in you stable coin reserve. That will limit you ability to take advantage of market correction. But at the same time, if any of the coin goes on to further down due to any unforeseen event, your other coin will not have any impact.
Now, assume the same scenario in Future trading with 20X cross margin and same position (i.e., $100 USDT for both coin). In this case, net margin exposure will be 5% of your capital and you will have $190 USDT to buy at lower price in case of market correction. You might even open a new position for another coin like #ada and diversify you portfolio and increase your return on investment. However, keep in mind that by using cross margin, you are exposing all the coin to any possible liquidation scenario like the event of #FTT or #Luna . As if any coin looses too much value, it can take down the entire portfolio. Hence, risk management becomes very important and one should not take large leverage positions to avoid any liquidation risk.
Please note that this hypothetical scenario for a bull market.
Let me know you views in the comment section.
LIVEIn our last post we discussed on how much capital we should keep in our active trading account and how much to keep in stable coins.
Now, we move on to second challenge we face in terms of selecting the trading mode between #SpotTradding , #Margin trading and #future Trading. Each of the trading mode has it's own merits and disadvantages.
--> Starting with Spot Trading: Spot trading is best for people looking for low risk and low return option. It is good for someone who believe in a particular project/coin and invest for long term (for a year or more). When someone plans to get into spot trading with long term view, s/he doesn't need to worry about technical or timing the market. The decisions are generally taken based on fundamental of underlying asset. However, in bull market, being focused on select few coins in spot trading may not help you in taking full advantage of market.
--> Margin Trading: Margin trading is medium risk and medium reward product. This is considerably ideal for people looking for stress free trading with long terms growth in bull market. Cross margin trading helps in using the profit of one coin in opening or covering position in other coin which might run in short to medium term. Here, entry and exit from a trade may become significant in order to ensure that we do not expose our selves to large positions.
--> Future Trading: Future trading has relatively high risk and with that comes high return. A single wrong trade can liquidate your capital and similarly, a single good trade can boost your wealth exponentially. Due to it's inherent nature, risk management is very important for Future Trading. Also, timing of entry and exit along with technical analysis becomes very important over and above the fundamentals of the coin.
We will focus more on Risk management, position size, DCA and how to create a disciplined structure for our Future and Margin Trading.
Do let me know your views or any other topic you want us to cover. Do not forget to like and share!
#btc #eth