What is Leverage?
In trading, traders often get to borrow additional funds from an exchange or a broker when trading derivatives, in order to trade underlying assets with the desired exposure. This means you can get leverage on an initial capital that you own. Essentially, leveraging or margin trading allows for opening a trading position with more capital.
Let’s say you want to buy #Bitcoin futures expiring 2 months from now, and you have $1000 on your account. But you want to trade Bitcoin with more exposure than the $1000 you have. Let’s say you’re on a margin crypto trading platform, and you borrowed $9000 from an exchange or a broker. In total then, you have $10,000 to trade Bitcoin with. Now you get a much larger exposure to the underlying asset.
With that ratio, you have a 10x leverage, i.e., the actual exposure that you have into Bitcoin would be 10 times your initial capital. You would buy Bitcoin worth $10,000 while your own capital is only $1000. For this post, let’s assume that the cost of one Bitcoin is exactly $10,000. So your capital along with its leverage would enable you to purchase one complete Bitcoin.
2. What is TP/SL?
Take profit and Stop Loss, they are numeric values where you either procure profits or prevent further losses respectively.
3. What is BE?
Break-even, meaning 0 loss or profit.
What is liquidation?
#Liquidation happens when your Margin Balance falls below the required Maintenance Margin of your position.
Meaning you'll lose the amount of margin (your money) used on that position if your liquidation price is hit.
We recommend using Isolated Margin.
To avoid this you should always have a stop loss in place for risk management.
5. What is funding when trading futures?
Funding rates are periodic payments either to traders that are long or short based on the difference between perpetual markets and spot.
Depending on open positions, traders will either pay or receive funding.
Negative funding means Short positions pay Long positions. Positive funding means Longs pay Shorts.
What is DCA?
- Dollar cost averaging.
Dollar-cost averaging is a strategy that can make it easier to deal with uncertain markets by making purchases automatic. It also supports an investor's effort to invest regularly.
#DCA KEY POINTS
Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price of a security.
Dollar-cost averaging can reduce the overall impact of price volatility and lower the average cost per share.
By buying regularly in up and down markets, investors buy more shares at lower prices and fewer shares at higher prices.
Dollar-cost averaging aims to prevent a poorly timed lump sum investment at a potentially higher price.
Beginning and long-time investors can both benefit from dollar-cost averaging.
7. What is a correction?
When you have a company and you believe the company will make profits or expand its business, you speculate in what a part of that company is worth. You buy a part and then you follow the company on a quarterly basis. If it’s not going the right way, you might correct your estimate. When a lot of people do this, the market goes through a “correction”.
What is FUD?
FUD is Fear, Uncertainty, and Doubt (often spread on social media or mass media). FUD can cause the price of a coin to drop, not based on fundamentals or charts, but based on bad news that spreads around social media. Many times the bad news isn’t substantiated or grounded in reality, and instead ends up being something silly like a popular talking head’s opinion that Bitcoin is a bubble. The fear, uncertainty, and doubt-inducing idea being spread around media can be referred to as FUD.
Research Thoroughly (DYOR)
The mantra "Do Your Own Research" (DYOR) is crucial in the cryptocurrency realm. Investing without a deep understanding of the project's technology, team, and market potential can lead to uninformed decisions. Thorough research empowers investors to sift through the noise, identifying projects with a solid foundation and a clear vision for solving real-world problems.
Understanding the intrinsic value and long-term potential of each crypto project is essential. This involves analyzing whitepapers, understanding the technology behind the project, the problem it aims to solve, and the team's expertise.x
An informed investor is equipped to make decisions that align with their investment goals and risk tolerance, positioning them to maximize gains during the bull run.
10. What is Profit/Risk Ratio- what is it and how to use it?We use this profit/risk ratio to estimate a possible profit in relation to a possible loss. In order to understand how much profit/risk ratio, the trader needs to determine both potential profit/loss. The potential risk is the difference b/w the entry point in the position and the stop order. The potential profit is the difference b/w the entry price and the target order
If you buy #Bitcoin at $69000, place a stop order at $68000 and take profit at $72000, the risk will be $1000 ($69000 - $ 68000), and the profit will be $3000 ($72000 - $69000)
Comparing the risk with the possible profit, we get the ratio: risk/profit = $3000/$1000 = 3
If the ratio is bigger than 1.0, it means that the profit is bigger than the potential loss.
Why is it useful?
Let's use statistics.
The table shows the dependence of the probability to lose the whole deposit on the accuracy of your trades and the profit/risk ratio in each trade.
