One way to make money in cryptocurrency is to trade them. More specifically, leverage trade them.
What Is Leverage Trading?
Put in the simplest terms, leverage trading, also known as margin trading, is a system that allows the trader (you) to open trading positions on much larger than his own capital. To illustrate:
Let’s say you own one bitcoin valued at the current price of $9000. The $9000 is your capital. Next, you decide you want to leverage trade your one bitcoin. You get an account with a cryptocurrency trading platform such as ByBit (its free). Then you transfer your Bitcoin over to ByBit. So far so good. Next, you need to take a position.
A position means how much of your Bitcoin you want to leverage. In other words, how much do you want to multiply it – that is – increase your position to trade with. Here is an example:
You have $9000 worth of bitcoin. Trading platforms such as ByBit will allow you to leverage that Bitcoin by a margin of up to 100 times or 100x.
It is rare to see someone leverage at 100x unless they are 100 percent sure that the price of Bitcoin is going to go in a particular direction: up or down. That said, I do not recommend leveraging at 100x because there is a very high likelihood that you will lose all of your capital. However, if your prediction in price movement is true, you can make a lot of money real quick!
If you are a new trader, I recommend leveraging at no more than 10x. To continue …
You have $9000 worth of Bitcoin. You decide to leverage it a 5x. Now, your capital of $9000 is multiplied 5 times to $45,000. The $45,000 is what you will be trading with. Where does the other $45,000 – $9000 = $36,000 come from? It comes from the trading platform. ByBit tacks on the extra $36,000 … but at a risk point.
If you enter into a trade and predict the price of Bitcoin will go up – called going long – then you will be OK. You will make money. But here is the catch: If the price of Bitcoin goes in the opposite direction – decreases in value – you will lose money.
Based on the amount you set your margin (in this example 5x), a liquidation price is set. Liquidation is the price in which Bitcoin must drop down to – in this example of entering a long trade – before you lose all of your capital, in this example, $9000.
The opposite holds true if you enter into a short trade – that is you predict the price of Bitcoin will go down and it doesn’t, instead, it goes up, ByBit sets a liquidation price that Bitcoin must drop down to before you lose all of your capital.
The more you leverage, the higher the chances of reaching liquidation is. The less you leverage, the lower the chances of reaching liquidation.
Trading platforms make their money from those who predict price movement incorrectly.
There is no magic pill when it comes to trading cryptocurrency because it is a highly volatile market. It is also highly manipulated by “whales.” Whales are persons who have tons of money to trade with and thus can control the price action of a particular cryptocurrency such as Bitcoin. The problem for the small traders – the minnows – is that we do not know what they will do. They oftentimes through head fakes to manipulate you to take your money. So, trading in cryptocurrency is a gamble. As far as I am concerned it is gambling.
There are charts and tools you can use that will help you predict the price direction of Bitcoin, for example, but they are not a sure thing. All a whale has to do it purposefully drive the price up and then unexpectedly sell and the price drops steeply. The chart will show this, but there is no way you can get inside the mind of a whale.
In my experience, those who make a lot of money in trading cryptocurrency are those who have “deep pockets.” They can have capital of $100,000 and leverage it 10x giving them $1,00,000,000 to trade with. Chances of them being liquidated is small because they did not leverage much. A small price movement in the direction they predicted could yield them thousands of dollars. So, it takes money to make a lot of money when trading cryptocurrency.
That said, you can make money leverage trading if you know what you are doing. The knowing what you are doing involves …
Learning how to read candlesticks
Learning how to read charts. Technical analysis (see example of a chart below)
Selecting and learning how to use trading tools.
Mastering your emotions when trading.
So, there is a learning curve. You need to crawl before you can walk. You must learn how to trade. Never start trading without first learning how-to. You will win some trades and you will lose some. The idea is to minimize your losses.
If you are starting out new, it will take you several months to get used to looking at the charts and the tools on them to know when to enter into a trade and when to get out of a trade.
Many new traders cannot handle it. They enter into a trade and lose their capital and never trade again. This is understandable. There are those who – after winning a few trades – see the money-making potential – get greedy and give back their profits by entering into losing trades. This is where mastering one’s emotions enter in. If you let your emotions (anger, elation, etc) get in the way of trading, you will lose more than you win. Take the emotion out of it. You want to be methodical, rational, and patient. How do you do that? By …
Learning and becoming comfortable with trading. (Take the time to learn)
Perform through technical analysis before entering into a trade.
Look at the trending.
Enter into trades that YOU feel stand the best chance of making a profit.
Think quality trades rather than quantity trades. This implies …
Never enter into a trade with more money than you can afford to lose.