Margin Trading Explained, High Risk, High Reward

November 6, 2021

As you know, I’ve been mostly busy with trading PFP NFTs. However, if you’ve invested in cryptocurrency you have probably come across people who are margin trading Bitcoin or other crypto’s.

Personally, I dabble a bit in this form of trading. I have a Bybit account, which I use to go long or short on Bitcoin a few times a week. When I checked the volume I traded over the past weeks, I was surprised to see it was over $3 million traded.

However, some of my friends are way more experienced in this matter. And for the purpose of this blog, my friend Valentino helped me explain this to you. It’s the first time I have a guest blogger on PokerCeo. Milestone!

Margin and Trading

By using margin or leverage, you’re putting up the assets you own to increase your bet size with trading. For example, with 1 Bitcoin I can open a 10 Bitcoin position if I use 10x leverage. However, if the market moves 10% on me, I can lose the 1 Bitcoin I have, because that’s 10% of my total position. But if the price goes up by 10%, you win 1 BTC, because that’s 10% profit on your total position.

Often margin trading is being portrayed as gambling, which shouldn’t scare poker players away. However, if you are not familiar with trading or don’t know the risk of leverage, then it actually is gambling. Especially with high leverages. So why do people still trade with leverage knowingly that they might lose it all.. well, the answer is simple of course.. to make huge gains!

If you’re not familiar with margin trading, that doesn’t have to hold you back. We’ll walk you through the basics of margin/leveraged trading.

Get Experienced

When you add margin to your position, things change. It’s important to understand that margin trading can be divided into two directions. When you trade with margin you have to decide which way you would like to trade, you have two options.

The up movement is considered as going “long”. Trading on the direction down is called “shorting”. So you can actually make money on assets that go down in price. Questions that come to mind are probably how? why?..

There exists a huge market for this in traditional finance and crypto. Derivative products have been booming for the last few years in the crypto industry. The accessibility of exchanges and other trading tools is enormous, everyone can easily start leverage trading.

When placing a margin position you can “borrow” short-term money to maximize your position stake. The funds you borrow for this trade come from the exchange and people that lend money, you don’t have to do anything the market is automated. 

100x Leverage Example For The Degens

When you want to long Bitcoin with one thousand dollars. You could set your leverage to a maximum of 100x. This means you will have 100x the amount you are trading with, the catch here is that with a 1% move down, your account gets liquidated. This means that you’ll lose the whole amount you are trading with, in this case, 1000$.

On the flip side, when the price goes up by 1% you will make 1% on the “notional” size of the position. Which in this case is 1000$+ profit. The notional size of the position is 100,000$ because you levered up the initial capital with borrowed funds. In the example of going long on Bitcoin at 60K$ you would make 100,000$ if you hold it till it doubles at 120K. You just got to be “lucky” that it won’t hit your liquidation price (-1%). This example is for high leverages. It’s possible to trade derivatives products starting with 1x leverage.

You need a solid mental game to handle these types of financial and possible emotional swings. It’s not for the traders who tilt easily.

Timing is Everything

Many new people every day around the world want to learn how to trade, around 99% fail and quit in a few weeks or months. Most of them start with leverage trading and are just trying random things, for example: changing the capital stake every other trade, opening more positions as planned, trying to handle multiple accounts or screens at the same time, cut their winners soon, and hold their losers longer.. All those mistakes and many more will make the majority of beginners quit. There are a lot of things you have to master before you can become a good trader. 

The first thing is simple. Do your research on technical analysis (TA). It might sound easy at first, drawing support and resistance lines, triangles, indicators etc. but there are a lot of practical mistakes made that will almost always, until you master trading, occur.

Emotions & Mental Game

Second, control your emotions. Even the slightest thought could be mixed with some kind of emotion in your personal life. Don’t try to mix your personal life with trading too much unless you want to become an influencer. Also never take advice or anything from anyone without confirmation on the chart or multiple sources. A lot of misinformation out there that purposely wants to mislead you.

Invest like $50 in your mental game, by reading the book “The Mental Game of Trading” , by performance coach Jared Tendler.

As third, and most important.. is your mental awareness and mental power. Being dynamic all the time is not as easy as it might sound. In various timeframes, the momentum could become unwanted and as you keep questioning your trade you could get lost in the market momentum. This usually will lead to closing trades too soon, or worse, at a loss while it could have been profitable if you held for some longer. It’s easy to get distracted.

Stick to your plan.

How do I become a good trader?

Decide the timeframe to be trading in. The higher the timeframe the lower the leverage usually. Since financial markets and especially the crypto market are extremely volatile. On lower time frames such as the 5 minutes or 15 minutes, the direction might look down, but if you zoom out to higher time frames such as 1h, 4h, 1d you’ll probably notice the smoother and slower-moving candles. Also, make sure you notice the flow within those timeframes. For Intraday trading (which is the official name for day trading) most traders use the 4hr candles as reversal or continuation patterns. Educate yourself on Candlesticks. It is a must.

Be confident and don’t get reckless. Every % and every dollar counts. Always stay sharp and if you notice frustration or any other emotion, just walk away for some minutes. The market is always here, when you sleep, eat live and die. There is no need to rush. 

List of TA Crypto Influencers

There are several influencers who push daily content about crypto trading. I’d like to start my day with a coffee and watching a video of 1 or 2 of these traders.

For the Dutchies:

Others:

Be patient

Learn how to trade directional movements. Don’t overtrade range-bound markets it’s actually one of the biggest mistakes made. Spare mental power for the directional moves and trade it at your best. This way you’ll gradually grow your account size. 

If you want to give it a go, you can start leveraged trading on Bybit by using my referral link. There are some signup bonuses available by using my link.

If we get enough position reactions to this article, we’ll do a follow-up on it. In our next blog about trading, we’ll go deeper into different options within leverage trading. So if you want to let us know you liked this, share it with your friends and on Twitter. Sharing is caring.

And let me know if you enjoyed Valentino’s guide and tone of voice.

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