So far, so good; 2021 has been a great year to trade BTC – Bitcoin, as more institutional money comes into the crypto ecosystem plus an increase in mainstream adoption of cryptocurrencies.
Talking about institutional money, Paul Tudor Jones set the pace in May of 2020, investing about 1% to 2% of his multi-billion US dollar portfolio in Bitcoin.
Tesla CEO Elon Musk joins the Bitcoin rush investing 1.5 billion USD into bitcoin this year. More recently, in the news, MicroStrategy increased its BTC Bitcoin holdings by 27% on 24 February 2021, buying the number one crypto-asset at roughly 52765USD per coin, worth about a billion USD.
On the same date, Square, the US payment giant, also increased its stake in the flagship crypto-asset, buying 170 million USD.
The 2021 crypto rush by institutions and retail traders alike started after the BTCUSD breached the 28 December 2020 high on 04 January 2021.
After the bearish accumulation, candlestick formation, which coincides with a hidden bullish divergence on 25 January 2021 (weekly time view), the Tesla CEO immediately jumped on the uptrend driving the price higher 58352.80.
On the same weekly time view, an opposite regular bearish divergence recently after the 22 February 2021 open hinted at a vast sell-off that brings the crypto giant to its current level at press time 50388.00USD.
If the weekly price plunge persists and signals another hidden bullish divergence, we may well be on our way to see the Bitcoin price quickly shoot beyond the 60K mark.
What’s the bitcoin margin/leverage trading?
Before we dive into what Bitcoin margin trading is, let’s first understand some basic concepts.
Believe it or not, whenever you hold a currency as legal tender or an asset as a store of value, you are placing a wager stating that the investment is more valuable than another.
Retail and institutional money flow into Bitcoin because they have more confidence in it as an immutable digital store of value.
However, this immutable digital asset does show huge swings and fluctuations that can be over 20% on some days.
So, say you identified a bearish reversal structure on the charts, and you decide to lock in your profits by placing a sell or sell limit order. Well, that’s a no-brainer, right?
But, what if you want to profit from the impending price slump like the case of the 2018 crypto winter?
Enter short-selling Bitcoin with margin/leverage.
To profit from a projected slump in Bitcoin price, we do so by taking what is known as a short-sell trade.
Short-sell trades of a crypto-asset like Bitcoin are only possible on a derivative of an underlying asset, Bitcoin.
Bitcoin derivatives are generally traded on leverage, allowing a trader access to more funds, therefore magnifying the short-sell position and allowing the trader to profit from a decline in the exchange rate.
When trading Bitcoin on leverage, you borrow money from your broker on margin, using the power of leverage.
Let’s clarify the ideas behind Margin and Leverage.
It is the minimum requirement as collateral to take a more significant trade than your available capital, and it is based on the leverage multiplier.
It is the multiplier on your capital, which can be 5X, 10X, 50X, or 100X.
Say you have a 1000USD account, and you take 10X leverage; this translates to you being able to control 10,000USD.
Although leverage trading gives you access to more funds and allows traders to wager on a price decline, it doesn’t come without a price.
That price is called the minimum margin requirement, subject to the ratio of leverage on your margin/leveraged account.
These days, trading Bitcoin on leverage is not popular among short-sellers alone but also among long-buyers who look to amplify their gains through the power of leverage.
Let’s move on to the pros and cons of trading Bitcoin on a leveraged account.
The Pros and Cons of trading bitcoin with leverage
Pros of trading Bitcoin with leverage.
Low Barrier to Entry
Trading on a margin account gives traders with low capital and sound trading strategy an opportunity to trade larger lot sizes, therefore bridging the gap between high and low capital traders.
Let’s consider a trading account of, say, 1000USD.
By applying leverage up to 5X, the trader can control 5000USD.
If the BTCUSD makes a 5% move in the anticipated direction, the trader would have realized a profit of 250USD.
Conversely, if the trader did not take leverage on the account and the trade moved 5% as analyzed, he would have only made 100USD on his 1000USD capital.
Trading on a leveraged account opens up the possibility of hedging trades by taking the opposite side of the losing trade.
Consider a scenario where you bought Bitcoin on leverage at 20000USD (2017 ATH).
You can easily take a short-sell trade as a hedge while the bear market (crypto winter) lasted and still profit from the downtrend.
Cons of trading bitcoin with leverage
Trading with leverage can be likened to working with a double-edged sword.
You get the same level of exposure on the upside when the trade goes as planned and on the downside if the trade goes against you.
It’s worth mentioning that if a trade does not go as planned, the loss is subtracted from your fractional margin provided.
Let’s consider a scenario where we apply a 100X leverage on a 100USD account, which lets us trade as though we have a 10K USD account.
In this case, if the Bitcoin price dips by 1%, which is very likely, considering that the crypto market is known for massive volatilities, you would have lost your entire 100USD. Note that 1% of 10,000USD is 100USD.
Higher leverage to capital ratio means an increase in your risk exposure, especially in a highly volatile asset like Bitcoin.
You can’t ignore trading fees when trading on margin. Some brokers may charge fees based on how long you hold the trades, mostly daily, so ensure to do your findings on possible broker charges/fees on margin accounts.
With that said, it’s crucial to shop for a broker with no conflict of interest when it comes to trade execution and offers low fees to trade Bitcoin on margin. One of such brokers is the BTCC which is a 10-year Crypto exchange and started to offer Crypto leverage trading since 2019 and the total trading reached 98 billion USDT contracts in the last 30 days, especially in the South Korea’s Crypto futures market / 비트코인 선물 계약.
Leverage Trading Bitcoin on the BTCC Crypto Futures Exchange
Unlike trading Bitcoin on regular spot exchanges where you can only profit when the Bitcoin price rises and your deposited capital, the BTCC crypto exchange offers two ways to trade Bitcoin on margin/leverage.
BTCC crypto exchange offers regular and perpetual Bitcoin futures contracts.
My favorite is the perpetual futures contract, as I get to hold the trade for as long as I wish, meaning there’s no expiration time compared to regular futures contracts.
With a perpetual futures contract on BTCC, I can leverage long or short positions on the BTCUSDT, creating room for more gains.
Trading Bitcoin perpetual futures on BTCC crypto exchanges allow traders to leverage their position up to 100X.
Finally, bitcoin leverage trading unlocks new opportunities to increase your potential profits as well as a hedge against risk in a bear market.
Consider adding a margin/leverage account from a reputable crypto broker like BTCC to your crypto trading portfolio, and always remember to trade responsibly.
Go for a free account in seconds on BTCC and try your first Bitcoin leverage trading. New users will get up to 2,000 USDT deposit bonus!
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