The lack of progress may compete for the most dooming state human mentality is capable of experiencing. Even if you fly really high, the constancy of it may confine you to the boundaries of stagnation. That’s why we seek changes, we seek alternatives, and we seek opportunity, as ones are the only drivers of our complete sanity.
Sort of aforementioned thoughts began to sprout up in my mind as I found myself a bit tired from the crypto trading. At first, it seems groundless: how could such a volatile market even bore? The controversy allegedly lies on the surface.
Indeed, I always sought new strategies, carried out analysis and flexibly altered my techniques, owing to the crypto market’s up-and-down changes. But it turned out, even absence of stability can be tiresome.
That was the sign for me to make radical changes. Hence, I decided to take up something new. Something that I was always kicking into the long grass.
Margin trading. A technique, whose idea lies in ensuring bigger incomes with borrowed funds trading, was soundly considered quite a risky challenge by me. The lack of experience, and proper emotional intelligence made me hesitate about starting it. Seeing that I’ve been sharpening my both technical and mental skills, I however changed my mind and put myself deep into this remarkable trading strategy.
A year and a half has passed since then. For that period, I’ve mastered all the aspects of margin trading, and carried out numerous trading deals (both profitable, and losing). Thus, now I’m ready to share crucial guiding principles for leverage crypto trading, which I discovered through my mistakes, and wins.
Context:
Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker. The leverage conferred by margin will tend to amplify both gains and losses. In the event of a loss, a margin call may require your broker to liquidate securities without prior consent.
№1. Do Not Start Margin Trading. Educate Yourself First
Even if you are a mature crypto investor, taking up margin trading without proper preparation would lead you to the dead end at the most optimistic scenario. However vast your experience in spot trading is, you should acknowledge that margin one is a whole new world, with its differences and specifications.
Before even deciding on starting my margin trading, I first got a comprehensive definition of its concept, its advantages, ifs, and buts. Great bunch of videos, articles, guides, and traders’ feedback — all those sources should be meticulously researched prior to taking up margin trading. The bigger picture you have, the more reasons you will have either to begin leverage trading, or halting this idea.
Gladly, the Internet is bursting with content on margin trading, and what is even more pleasing, there is plenty of really qualitative material on that topic. It is the rarest case when clicking the first links in Google would really do the trick. Resources, crypto exchanges, and forums possess all the necessary information you need to acknowledge.
In a nutshell, take enough time to educate yourself before making a decision to begin margin trading. The comprehensive understanding of the concept will ensure a clearer picture for you to determine your next, radical step.
№2. Think Twice. Even Thrice.
When you study margin trading from A to Z, you will have a more consistent plot to think about. Only given the full details on bits and pieces of it, it is time to make your decision: to begin, or not to begin margin trading.
Still, many of you are overthinkers, just like me. Hence, to facilitate the cognitive process, I’ve prepared a distinct list of questions that I should have answered to myself:
Why do I want to start margin trading? Do I want it because I’m bored, or do I see potential in it?
Does my aspiration to begin margin trading derive from the keen interest, desire to have bigger incomes in shorter terms, or is there any other reason for it?
Will I have free time to carry out margin trading? Would my main source of income or trading strategy be hindered?
What will happen if I take up margin trading? What will happen if I won’t?
What are my goals for margin trading? Which outcomes are to be expected?
Can I afford margin trading? Do I have enough budget for it?
Apparently, the crucial aspect to heed when thinking of margin trading is assessing your budget. Thus, it should be studied separately.
№3. Make Sure Your Budget Will Not Suffer
The core risk of margin trading lies in its financial nature. It is critical to acknowledge that leverage trading is carried out with borrowed funds. Given that, it will either result in vaster profits, or disastering losses that will greatly exceed your personal funds.
While I was just beginning my path into trading 3 years ago, I’ve elaborated a golden rule of thumb for distributing my budget. The idea is to invest no more than 10% of your calculated budget into experiments while learning, and after you manage to keep profitable sentiment for half a year, begin trading with your main capital of 90%. The truth is, I am still using this framework and spending the money for testing new strategies, or studying new assets. In the majority of cases, it is lost, but those losses mark my mistakes. And, pivotally, I’m losing the sum equal to my investments.
But margin trading’s idea means that if the asset is downfallen, then you will lose your leverage balance as well, but not only a margin from the price. Given that, your budget should involve a proper amount of funds to return the sum, a so-called financial backstop. Your reserves should cover the amount of leverage in case of a losing deal. Even if you will use the aforementioned framework of mine, your testing 10% and main 90% both should be backed up by a financial cushion.
In fact, it is another aspect to think of:
is your budget enough to have and be ready to refill the needed reserves?
In addition, I’m sharing with you a helpful article, which will help you to maintain your margin budget more carefully:
№4. Reform Your Mentality
Seemingly, high emotional intelligence is the pure essence of trading overall. True, yet margin trading requires a slightly different approach in mentality.
As a matter of fact, margin trading is a venturesome technique. It spurs more excitement, and more thrill, that can cause an equally stronger impulsiveness. While taming it seems the only right solution, it is not quite as effective as the strategy that I worked out for myself.
Instead, try to feel the gamble and put it in the right direction. Yes, I’m talking about the underestimated strategy of gamification. Create a strategy, and maintain the analysis of your results, but follow small steps, be ready for disappointment, and add the sprinkle of excitement — this formula helped me take my margin trading numerous stages further.
Besides, the principle of gamification also envisages taking active part in the community. It is not only entertaining, but truly helpful. Certain crypto exchanges even mastered this approach as a promotion, like WhiteBIT, which offers a prize for sharing the ROE in margin trading.
Still, mental control in margin trading remains quite a complicated topic, thus I’m sharing with you an article on more detailed information about it.
My path in margin trading continues, and evidently, I will receive more and more insights about it. If you would like to know more about my leverage crypto trading, let me know in the comments. I would be glad to share more thoughts and guides about it.
