Understand the risk of margins: warning guide for cryptocurrency
The rise of cryptocurrency was born in a new negotiation era, and many investors have plunged on platforms such as Coinbase, Binance and Kraken to buy, sell and exchange digital assets. Although the potential awards to invest in cryptocurrency are important, this world is also a darker side: trading of margins.
Trade with margins includes the loan of money from an intermediary or a scholarship to increase exchanges, allowing you to take a higher risk and gain higher yields. However, it is also delivered with a strong reference: if your position is against you, your account may be destroyed.
In this article, we dive into the world of margin traffic, examining the risks of liquidation and how to mitigate them in cryptocurrencies.
What is trading of margins?
Trading with margins allows you to exchange a larger quantity of cryptocurrencies that you could afford it differently. This is done using money borrowed from brokers or exchanges which are then used to finance your stores. The idea of marginal traffic is that if your position is against you, the creditor will cover part of your losses.
For example, let’s say that you put $ 10,000 on the margin account and buy $ 5,000 for $ 5,000 for a exchange rate of $ 1 = 3 BTC. The balance of your account would be:
- Initial deposit: $ 10,000
- Borrowed funds (from the creditor): $ 0 (since we have not borrowed money)
- Balance available for trading: $ 10,000
Risks of elimination
Liquidation occurs when your margin is considered too high to maintain. This can happen in cryptocurrencies when:
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- The size of the position exceeds the available means : if you try to close a long or short position too large for the balance of your account, the scholarship displays your position and selects the funds of your account.
If your position is liquidated, the funds will be returned to Bitcoine, but with fines and interest. For example::
- If you sell 1 BTC for a exchange rate of $ 10 = 3 BTC, you will have $ 2,000.
- Exchange deduces a fine of 50% for your initial investment (for example, from $ 10,000 to $ 5,000) the more interest.
Risking risk in cryptocurrency
Although elimination can be devastating, there are ways to reduce its impact:
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- Configuration of stops : Place automatic controls for sale to limit the loss if you lose money in position.
- Use safety strategies : Use the possibilities of use, term contracts or other derivatives to lock prices before the store.
- Carefully monitor the balances of your account
: regularly check your positions and adjust if necessary to avoid liquidation.
procedures proven for margins in cryptomena
Follow the following proven procedures for commercial margin accounts:
- Start with a low lever effect : Do not risk more than 5 to 10 times the amount you can afford to lose.
- Keep a small size of your margin account : focus on the balance of $ 5,000 to $ 20,000 or less.
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Use reputable exchanges and brokers : Look for well -established platforms that offer safe and reliable commercial services.
- Stay informed and patient : Keep a trace of market trends and adjust your strategy if necessary.
Conclusion
Although trading of margins can be an exciting way to invest in a cryptocurrency, it is necessary to understand the risks associated with liquidation.