💥Margin trading with OneExBit: understanding the risks💥
🔷OneExBit offers all the features of an advanced trading terminal – including marginal trading, of course. In our previous post, we already explained what marginal trading is – essentially it means borrowing money (leverage) to maximize your trading profits. However, we also stressed that it can be risky and even dangerous in the wrong hands. Today we’ll talk more about the pitfalls of margin trading – and how to avoid them.
🔷It’s for a good reason that margin trading is often called a double-edged sword. If you are lucky (or calculate your strategy really well), you can earn enough to ensure yourself a cushy lifestyle or a vacation of your dreams. If your luck runs out, though, you might end up losing all your assets and still owing money. That’s the key insight about margin trading: it maximizes both your wins and losses.
🔷Imagine that you had $1000 in our trading account when Bitcoin hit $3300 and then slowly started growing back in January. If your expectations were on the bullish side, you used that $1000 to buy some BTC, and by now, with the exchange rate standing at circa $8700, your investment would have multiplied by a factor of 2.6, so instead of $1000, you would now have $2600 worth of Bitcoin. Sure, a net profit of $1600 is already a good gain. But what if you had access to x3 leverage, for example? Operating with $4000 in total (3 thousand of borrowed money and your original thousand), you would now have $10500. Of course, there would be interest charges to pay to the lender (exchange or broker), but even so, you would end up with more than $9000 in net profits. Sounds much better, right?
🔷And now imagine an opposite situation: say that you have missed the growth spur earlier this year and decided to purchase some BTC now, with the price already at $8700. Let’s say that something negative happens – for example, the SEC denies the ETF application by VanEck and Solid X in August – and the market takes a plunge down to $5000. If your BTC investment is limited to your personal $1000, you will have $574 left – a net loss of $426. However, if you have borrowed $3000 (3x leverage) and bought $4000 worth of BTC, your holdings will be down to $2300. You will still need to pay back the lender the $3000 you had borrowed, plus the interest charges. So you would not only lose all your original $1000 investment but also dish out more than $700 of your personal money. A serious blow!
🔷Does this mean that margin trading is just too risky? No, of course not. Most successful traders use this tool with impressive results. But it’s definitely not for newbies. When you first try your hand at margin trading, make sure to get a low leverage – not more than 0.5x (the exchange or broker will probably not offer you more, anyway). Think very carefully about your strategy and try to play it safe. And of course, as with any other kind of crypto trading, only trade an amount that you can afford to lose.
🔷In our upcoming posts, we will explain how exactly you can do margin trading with the OneExBit terminal – stay tuned!
♥️Onex Team
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