Cryptocurrency is a decentralized digital or virtual currency in the form of coins and tokens that work as a medium of exchange to buy and sell digital assets. More than 33% of people in this pandemic used to hold or trade individual stock as opposed to ETFs mutual funds. Similarly, 36% of people increase the stock exposure amount in their portfolio. The cryptocurrencies are secured or encrypted using a complicated and specialized computer code called cryptography. The individual coin ownership records are stored in an online ledger to secure the transaction records. It does not rely on banks or governments and is managed or governed by any central authority. It works through distributed ledger technology typically called a blockchain. Blockchain is an open and shared database that comprises a huge amount of information and financial transaction. The blockchain is the transaction history for every cryptocurrency and it shows how ownership has changed over time. As a transaction happens, the software logs each of the transactions in blocks and every copy of the blockchain is simultaneously updated with the new information with new blocks added at the front of the chain.
The trading happens through a Contract for difference (CFD) trading account by speculating the price movements whether the chosen cryptocurrency will rise or fall in value. CFD is a leveraged product that means just for a fraction you can open a position of the full value of the trade. The leveraged products can help you magnify your profits, but also it can magnify losses if the market moves against you.
Leverage is a mechanism of increasing exposure in trading to large amounts of cryptocurrency to the market without having to pay the full value of your trade upfront and instead you have to use a small deposit known as margin. Your profit or loss is based on the full size of the trade when you close a leveraged position. The leverage will help you magnify your profits and also it brings the risk of amplified losses. Sometimes the losses can exceed your margin on an individual trade. It is extremely important to learn leveraged trading and how to manage your risk.
In leveraged trading, the most important part is a margin. Margin is the term used to describe the initial deposit you used to open and maintain a leveraged position. It is important to remember that your margin requirement will change depending on your broker and the size of the trade when you are trading cryptocurrencies on margin. The percentage of the full position is usually expressed by a margin. More than 43% of retail investors are using options and margins or both.
Leverage a trade on Bitcoin or crypto may let you magnify your potential profits and conversely, it may magnify your losses also. It happens by giving you control by providing you between 5 and even up to 100 times the amount you needed to open. For example, if you wanted to invest $1000 in a stock at a leverage ratio of 1:10 and making a margin of 10%. Then, you would only need to invest $100. With unleveraged crypto trading, you would need to invest $1000 which’s a considerable amount more. However, if your stocks go up then your profit margin is also doing the same. Or with leverage trading Bitcoin, much less capital is required to make the exact same profit upfront. You should in mind that the reverse may also possible if your stocks were to go down.
The biggest risk of margin trading is it can amplify your gains and also your losses. Here are some of the tips on how to manage that risk.