Trading cryptocurrency is an excellent way to make money—and if you’re smart and patient, lots of it.
As you probably already know, trading is a little different than investing. When you trade cryptocurrency (or anything, for that matter), you’re not looking to buy a stake in a blockchain project. Instead, you want to capitalize on the fluctuations in the market, buying during the dips and selling when the price increases.
Most traders don’t make money off huge market fluctuation, however. There was a period in 2017 when traders and investors made a lot of money because currencies doubled in price over a short time frame. It was a great time to make money, but it’s not something you should come to expect as a trader. The majority of experienced traders make their money from smaller fluctuations, and because they have so much money invested, they stand to earn a nice profit from a 10% increase in price.
For crypto traders, the saying, “you’ve got to have money to make money” is as real as it gets. The more money you put in the dips, the more profit you gain from those bull runs. But how can you make money as a trader if you don’t already have a lot of money at your disposal?
The same way most successful crypto traders do: With margin trading.
The Rundown on Margin Trading
Margin trading gives traders the opportunity to multiply their money, but it’s also much riskier than conventional trading. This is because margin trades are financed in part by lenders. This is great because it allows you to trade with more money than you’d have on your own, and that means more potential earnings for you. But it also means that you run the risk of losing at the slightest unfavorable change in the market, as you’ll be automatically liquidated before you can spend the lender’s money—and the money you borrowed from them gets returned immediately, leaving you with absolutely nothing in the worst-case scenario.
What’s more, you can add a multiplier (called “leverage”) to your trade. Leverage varies on platforms, usually ranging anywhere between 2x to 10x. In some cases, leverage can get as high as 100x. This increases the risk and reward, meaning if you win, you win big. But if there’s a minor unfavorable fluctuation in the market, you lose double (or triple, or 10x, etc.) the amount.
Finally, there are two positions you can take when margin trading: Short and Long.
Taking a short position means you’re looking for the perfect time to buy a currency. The lower the price drops, the more money you make. If the price shoots up, you lose money.
The long position, as you can imagine, is the exact opposite. It’s looking at when to sell. The higher the price goes, the more money you make.
Your position stays open until you close it and take your earnings (or what’s left of your investment) or get liquidated. For this reason, it’s not recommended to leave a position open overnight or when you’re not watching the charts, due to the unpredictable nature of the crypto markets.
Popular platforms for bitcoin and altcoin margin trading include:
A Recap on Margin Trading
To summarize, margin trading is trading with borrowed funds. When you short, you want the price to go down. When you take a long position, you want the price to go up.
Remember, many traders have lost it all trying to win a jackpot from margin trading. Don’t get greedy and use the highest leverage available.
If you enjoyed this post, be sure to check CryptoTraderNews for other trading tips, as well as exciting news covering the latest in cryptocurrency and blockchain startups.
