Leverage Trading

Margin trading is basically leverage trading, where you use funds from the exchange to increase your profit realization. I wouldn’t go into much technicalities, but it is close to you borrowing money to trade in stocks/crypto in the hope of making a larger (absolute) profit. “Hope” is the keyword here, and that means loss is also a reality.

Now, even my mum and grandmum know borrowing money to trade is bull-dung (you know what I wanted to say) and therefore a very bad idea to start with. I agree and therefore warn you, don’t try this with funds you AREN’T READY TO LOSE. Don’t mortgage your house, your neighbor's house, your dog, car, etc., for this.

Coming back to the topic, margin trading can be cross-margin or isolated-margin, depending on what options your registered exchange provides. The basic difference is that cross margin will allow you greater leverage, considering all assets that you have available with you, while isolated margin will focus only on the asset that you borrowed and the quantity available of that particular asset with you. Just like a bank will check the money you have in your savings account while providing you a loan (isolated margin) or they check your total assets, like a car, house, and any other collateral that you are ready to present in order to secure a higher amount of loan (cross margin). Same logic.

So, let’s see how I go about it.

Why Do I Play Cross Margin | And How Do I Go About It?

It’s just for fun. The regular trading is like waiting forever, and when the price works in your favor, the profit is not much to talk about. To spice things up, I play margin trading. Again, only within my means. Don’t overdo it.

How Do I Go About It?

Step 1: The Borrowing

So far, I have tried this on Binance and only on two assets – 1inch (2 years ago) and BTC (recently and still ongoing). I had fun trading with 1inch and closed it after four months of constantly playing with the price. This is what got me interested in margin trading. At the moment, it is BTC and BTC alone.

I do step trading on the cross-margin front, also. What is step trading? The one I had explained in one of my previous articles. I will explain the same here again.

How much you can borrow from your exchange depends on the exchange. In the case of Binance, I borrow up to 10 times. Not more.

Step 2: Setting Up the Price Steps

At any given point in time, Bitcoin has a pattern of trading + or – 10,000 dollars from a midpoint. For example, while we are discussing Bitcoin’s price as of today, it shows propensity of trading around the midpoint 112,500 (don’t ask me how. It is my observation and not some graphs, patterns or complex mathematical models. 😊) so, all I have to do is track the Bitcoin price to -10,000 dollars or up to 102,500 and +10,000 dollars or up to 122,500 dollars. That’s it. That’s the first analysis, and now that I have it out of the way.

Step 3: Setting up the Trade with Leverage

I create a buy order if my selected price is less than Bitcoin’s current price, or a sell order if my selected price is more than Bitcoin’s current price. So, what this does is that when the price goes down, I automatically buy Bitcoin, and when the price goes up, I sell Bitcoin. I usually do this in steps of USD 2500. Here is my order chart on one of the exchanges.

As I write this post, Bitcoin is trading at USD 111,300. Notice that there is one “buy” order at USD 107,500 (because it is less than the current price) and there are sell orders at and above USD 112,500 (because those are higher than the current price points.)

Now this is what happens. As the Bitcoin price moves up, I sell BTC at USD 112,500 and collect USDT. The reverse is also true, as the Bitcoin price falls, I buy it at 107,500.

What do I do then?

Step 4: Keep the Trade Going In a Loop

I then create a “sell” or “buy” order again in steps of 2,500.

For example.

1. If I bought 0.000372 BTC at USD 107,500 because the price fell, then I will create a new sell order at USD 110,000 for 0.000372 BTC. In that case, when BTC price goes up, my order will once again get filled at USD 110,000, and with that, I will once again create a buy order at 107,500.
2. In the situation that the price goes up, I will sell 0.000348 BTC at USD 112,500. From the realized USDT, I will create a buy order at USD 110,000.
3. I continuously set up the orders in a cycle, taking full advantage of Bitcoin’s price movement between USD 107,500 and USD 126,000 (this was the highest BTC hit recently. I always do this in steps of USD 2,500. You are free to choose your own steps. It could be USD 1,000, 500, or even 3,000. Do what suits you.
4. Note: Here, I don’t intend to take out the money from the sale of Bitcoin. I am just playing the market and growing my BTC stash as the price fluctuates.

That’s it. That’s how I trade.

But Remember | Important

I would recommend returning the borrowed money to the exchange at regular intervals once your own stash grows. That way, you can still trade margin but with less of the borrowed money. Cross margin is a non-linear or even exponential way of increasing your stash of money (in this case, BTC). Why not. 😊

The price of Bitcoin will keep fluctuating beyond the +/- 10,000 range also. For example, just three months back, the price ranged between 89,000 and 110,000. At that point, USD 110,000 was Bitcoin’s All-Time-High (ATH) price, but today it trades between USD 105,000 and USD 126,000. So, keep shifting your orders to fit that price range. From my experience so far, BTC stays around a price point for roughly four months. This too may change. But what have we got to lose? We are growing the stash nonetheless.

But Why Do This? | Why Trade In the Margin Market?

Because I don’t like my BTC sitting idle. Even when I play with BTC in regular trades, the profits are just not enough. Technically, they are enough, but if I have a method of trading, shouldn’t I maximize it? Isn’t that smartness? Hence, my interest in Margin trading. We can argue about staking or even crypto exchanges’ earn programs, but those don’t give returns at the rate at which I get just by betting on the fact that Bitcoin’s price cannot remain stable. That’s all.

And as Bitcoin’s price keeps fluctuating, I keep growing my stash, much more than the 10% APR that I could earn from staking or earn programs.

I like this form and I think it makes sense. You can try the same with other coins/tokens too. But select a constantly moving coin/token. That’s where you can make the most. I hope you all enjoyed reading the article.

Take care. Until the next one!

Image Courtesy: PabitraKaity at Pixabay(dot)com