BITCOIN TRADING WITH LEVERAGE - HOW TO DO IT
What is Bitcoin Leverage Trading?
The term Bitcoin leverage trading refers to trading Bitcoin Contract for Differences (CFDs) to take advantage of the leverage offered by numerous brokers. For instance, if you are trading Bitcoin with a broker offering a leverage of 50:1 on Bitcoin CFDs, you are essentially trading $10,000 worth of Bitcoin by investing only $200.
By trading Bitcoin with leverage, you do not own any Bitcoins. You are simply using leverage to bet on the next direction of Bitcoin’s price. Several brokers offer different levels of leverage for Bitcoin leverage trading. This can range from 1:5 to 1:100.
How does Bitcoin leverage trading work?
In the simplest of terms, Bitcoin leverage trading allows you to control a more sizable position to generate profitability. Depending on the broker, you may be allowed to control 10 to 20 times the amount required to open the position. The amount you have to put down to open a trade in Bitcoin leverage trading is called margin. For instance, if a broker requires a 2% margin to open a 51:1 leveraged trade, you will require 2% of the trade size to open the same position. Thus,if you want to open a position worth $50000 Bitcoin, you simply need $1000.
Risk Management
It may sound surprising that traders can lose 100% of their deposit when trading Bitcoin with leverage. However, this situation is quite common while trading on leverage. This is mainly due to the volatile nature of Bitcoin prices which makes it common for it to have a price swing of 10% in a single week.
Traders should always consider the risk involved before trading Bitcoin with leverage. Even when some brokers offer leverages as high as 50:1, it’s extremely foolish to bet one’s entire account on a trade. To reduce the leverage on the specific position, one has to simply reduce the position size for each position they take. There are certain steps traders can take to avoid their trading accounts from getting affected negatively by leverage.
- Do not risk too much: Traders should never risk half of their capital on a position, regardless of the success they are experiencing from a particular trading strategy. There’s no telling which trade will go against them, which is extremely likely in Bitcoin trading. Look to risk only 5% of your trading account which will allow you to withstand a losing trade. Risking more than 5% of a trading account is taking on too much leverage. Losses experienced from leverage trading can invoke a number of emotions from the trader, which increases the chances of successive failure if he/she tries to win the amount back.
- Always use stops: Stop loss is the price level at which a broker is expected to close out a losing position for the trader. By setting a fixed stop-loss, the trader is aware of how much money he is risking on an open trade. The trader should determine the position of the stop loss depending on the strategy used. Standard stops are not always honoured by brokers, who only close the trade at the best available price after reaching the trader’s stop. The situation gets tricky during periods of extreme volatility, as the best available price might be a hundred pips away from the trader’s preferred stop. This is another reason why we should risk very little per trade. For instance, if the trader risked 1% of his capital on an open trade, price overshooting the stop by 2% will only increase the trader’s loss from 1 to 3%. But if the trader risks 10%, it can lead to a 30% loss of their capital.
- Setting guaranteed stops: Guaranteed stops are the same thing as conventional stops only with the broker closing the trader’s position at the exact designated stop loss. This protects traders from high volatility or weekend gaps.
Our Advice: How to trade Bitcoin with leverage on IQ option
Traders can get access to an impressive range of cryptocurrencies through IQ Option. Their cryptocurrency offering includes major tokens such as Bitcoin, Litecoin, Ripple, Dash, Ethereum and others. The availability of cryptocurrencies on IQ Option differs from time to time.
There are two Bitcoin instruments available with IQ Option: Bitcoin (original) and Bitcoin x100. The Bitcoin x100 instrument is a recent addition to their offering which can be traded with a leverage setting of 1:100 only. The instrument has a set expiration time on a daily basis and has a much narrower spread than IQ Option’s standard Bitcoin instruments. Clients do not incur overnight fees when trading Bitcoin x100 because it cannot be held overnight. The standard Bitcoin CFD from IQ Option can be traded with up to 1:10 leverage. Other leverage options include 1:1, 1:3 and 1:5. Overnight fees are charged in this case.
With IQ Option, traders get access to similar instruments to the Bitcoin x100, such as stellar (Stellar x20), iota (Iota x20), and neo (Neo x20) which can only be traded with 1:20 leverage. Any open position is automatically closed at the end of the trading day because they have a daily expiration.
Please note that Bitcoin x100 is available for non-EU Traders only!
Different leverage settings for cryptocurrencies
The same leverage settings are not available with the standard cryptocurrency CFDs available with IQ Option. They only come with the following leverage settings: 1:1,1:3, 1:5 and 1:10. On the other hand, the special crypto CFDs which are leveraged, such as the Bitcoin x100 have fixed leverage settings. IQ Option does not allow clients from the European Union without pro accounts to access the special crypto CFD products and can trade only the standard ones.
IQ Option Bitcoin Spreads and overnight fees
Swap fee
IQ Option charges a swap fee if the trader keeps their trade on overnight. It’s usually 0.6% and is applicable only on CFDs securities such as ETFs, commodities, forex and cryptocurrencies.
Dormants fee
IQ Option charges a dormant fee of €10 if the trader does not record any trading activity for 90 consecutive days. The same amount is charged on a monthly basis after that should the trader’s account remain dormant. This fee is applicable to all account types.
Pros of Bitcoin leverage trading
Bitcoin leverage trading gives traders with limited funds the opportunity to compete and profit at the same level as a trader with much more capital on the line. This can be extremely advantageous for growing trading accounts over a short period of time.
For instance, a trader with a $1000 trading account can open $100,000 position with 100x leverage. The trader can profit $5000 if the market moves positively by 5%. This is the same profit that one would earn if they put the entire $100,000 on the line with no leverage. Trading $1000 without any leverage would only yield a profit of $50.
Because it requires less capital, Bitcoin leverage trading provides traders an additional opportunity to hedge their portfolios with multiple trades at one time. This helps to minimise a trade’s exposure to risk. For instance, one can open a short hedge to protect against the loss of an unsuccessful long position in the event of a massive decrease in the asset’s value.
Cons of Bitcoin Leverage Trading
There are several risks associated with Bitcoin leverage trading, mainly due to the cryptocurrency market being a very volatile one. Because of this volatility, changes and trends and occur in an instant. One can earn 10 times more profit in the same way one can lose 10 times more. For instance, if a trade for $100 had a 10x rate with a 10% negative price trend, there is a chance of losing the entire order.
Thus, novice traders should always look to educate themselves thoroughly before using this tool. They can easily lose their entire savings after experiencing successive large losses thanks to leverage.
Traders also need to take fees under consideration, which varies greatly between exchanges and brokers. The fee is typically applied to the increased position size and not the initial investment. This is mainly because the broker allows the trader to trade an enormous amount through leverage. In some cases, brokers or the platform may charge an additional fee for margin trades. Therefore it’s very important to choose a platform that has low fees and preferably, no additional fees.
Conclusion
Trading Bitcoin with leverage has its advantages as well as disadvantages. While it’s true that successful trades in leverage trading can yield magnified losses, it acts as a double-edged sword. If one is not careful, a wrong decision in Bitcoin leverage trading can ruin a trader’s account. Another added factor, in this case, is the volatile nature of the cryptocurrency market, which makes the process event riskier. Thus, Bitcoin leverage trading creates otherwise impossible opportunities to generate tremendous profits in a short period, while also exposing the trader to amplified losses. To get the most out of Bitcoin leverage trading, traders should always go for a reputed broker that charges nominal to low fees for the service.
For more please read Trading Cryptocurrency CFDs With IQ Option
IQ Option Bitcoin Trading
|
|