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1  Economy / Trading Discussion / MARGIN TRADING explained for newbies, noobs, new traders. on: June 13, 2019, 11:06:10 PM
Hello All

I've noticed that margin trading questions keep popping up on this forum and there seems to be a lot of misconceptions, misunderstanding regarding this issue as well as just lack of knowledge.  I totally understand this as I struggled to understand margin trading and the issues surrounding it when I first started to trade, so a helping hand from me to those learning to trade and wanting to know more and understand margin trading.

I will provide an analogy in regards to MT (margin trading), in a way that hopefully makes sense to you as it did to me.

I'm sure you have probably you have heard that MT amplifies your gains and losses.  Lets see how purchasing with and without MT effects your account balance and the risks and rewards involved with MT.

The analogy I am going to use is the purchase of a house using a loan/mortgage, as the principle is similar to trading crypto with margin.  This is a transaction many of us make in some points of our lives so understand it better.

You decide to buy a house worth 100k.  Your bank requires a 10% deposit (10k).

You are therefore looking to buy this house on ratio of 10/1 (or another way of saying it is on a leverage of 10/1)

If the bank had required 20% you would be buying at a ratio of 5/1 (leverage of 5/1).

Your initial deposit (or MARGIN) for the house is 10k and this is what your bank requires and will use as a risk mitigating factor to avoid its potential loss on its loan to you (expained later).

lets say your house price after a few months after purchase has increases by 10% to 110k.

So your initial investment was 10k and your house has now risen in value by 10k.  You have therefore made a 100% profit (ROI) on your initial capital investment if you were to now sell the house.  Hoorayyy you have made an awesome investment.

If the house had risen by 1% or say 5% (to 101k or 105k) you would have made a profit/return on investment (ROI) of 10% (1k) or 50% (5k) on your initial investment of 10k.

Now Lets look at if you purchased the house with no loan from the bank (NO deposit/margin) using a full 100k you had saved from work.

Again the value has increased by say 1%, 5% or 10% to (101k or 105k or 110k).  The profit you have made would have been either 1k, 5k or 10k.  So a ROI of 1%, 5% or 10% on a 100k initial investment.  You can immediately see even though your returns were the SAME! your ROI was way LESS with this method of purchase due to the larger amount of capital you used to purchase the house.

Now lets look at the opposite scenario.

The house price starts to decline for whatever reason.

You purchased on a leverage of 10/1 (10k yours 90k bank).

a 1% decrease (house price 99k), 5% decrease (house price 95k), 10% decrease (house price 90k).

If the above scenarios occurred you would have lost 10%, 50% or a total loss of 100% respectively on your initial capital of 10K!!! damn wiped out completely with 10% move against you so no more buying for you!!!

If you had used NO money from the bank and purchased the house with 100k of saved funds.

a 1%, 5% or 10% decrease would have reduced your capital investment by 1k, 5k or 10k respectively, therefore you would be left with 99k, 95k or 90k.

Below is the loss you would occur if you have used different leverage (borrowing ratios) and subsequently (DIFFERENT deposit/MARGIN allowance amounts) with a 10k investment and the price decreases.

10/1 (10k yours 90k bank) 1% decrease =1k loss=10% loss on initial investment=9k
50/1 (2k yours 98k bank) 1% decrease =1k loss=50% loss on initial investment=1k
100/1 (1k yours 99 bank) 1% decrease=1k loss=100% loss on investment=0

As you can see in the third scenario a 1% decrease would have wiped out 100% of your 1k deposit/margin allowance due to the highly borrowed ratio (leverage) amount.

The BIG question most ask is what happens if the decrease in value is more than your initial investment!!!!.  Well let me tell you something, before that even happens the bank will forcefully sell the property as soon as the decrease is close to (60/80%) your initial investment amount and will certainly avoid ANY LOSS to their balance sheet and borrowed amount.  To add insult to injury, they will return a small balance leftover (usually not very much at all after they have taken all their fees to sell your house in an emergency).

Lets now look at a different scenario and say you want to purchase flats worth 30k each instead of a house, and the bank still lends at a ratio (leverage) of  10/1.  The bank therefore requires a 3k initial deposit (or margin required) per flat (3k yours 27k bank).

With your initial 10k you can purchase 3 flats on 10/1 leverage and still have 1k left over.

You have now made multiple purchases using your same 10k deposit and are still looking for another investment for your 1k that is remaining.

Now relating the above to trading crypto using margin.  The principle is exactly the same, you are borrowing to buy or sell a larger position using a small deposit in your account (margin allowance).  You can open one position or multiple positions depending on the leverage you use and an amount from your account will be used as a deposit by the exchange (or otherwise known as USED MARGIN ALLOWANCE allocated to that buy or sell position by your exchange).  If the position moves against you significantly (60/70% decrease), you will receive a margin allowance call (the exchange WARNING you) to say your allocated MARGIN/deposit is low according to their requirements.  They will allow you do close the position or ask you to increase your MARGIN/DEPOSIT by adding more funds

BTC is currently at $8300, to buy or sell 1 full BTC

a 5/1 position will require $1660 as your margin deposit  (20% negative swing in price for total loss of funds)
a 10/1 position will require $830 as your margin deposit  (10% negative swing in price for total loss of funds)
a 50/1 position will require $166 as your margin deposit  (2% negative swing in price for total loss of funds)
a 100/1 position will require $83 as your margin deposit  (1% negative swing in price for total loss of funds)

A LIQUIDATION will occur when the exchange forcefully sells your position due to insufficient margin/deposit in your account for that position you opened that has moved against you significantly, and therefore the exchange recovers their borrowed funds from you.  You will get liquidated before you reach a complete loss (known as bankrupt price).

Margin trading is something all professionals use and is a step up from normal trading.  As you can see you can buy (go long) or sell (go short) on a larger position using a small amount.

Most professionals usually DO NOT RISK more than 5% of their TOTAL account per trade.  Your risk/loss tolerance should be strongly taken into account when margin trading.

2  Economy / Trading Discussion / What is your trading style? on: August 05, 2018, 11:46:27 AM
It would be interesting to know what your trading methods and style are?  and how successful your strategy is?

I have been trading for less than a year.  At the momement I mostly like to trade BTC and ETH due to the 5* leverage on Kraken.

Up until now, I have been trying to be a trend reversal trader.   I mostly try and use RSI divergence on various timeframes (however prefer 4h) in undersold and oversold conditions, as well as using the MACD and the histogram as complimentary tools.

The histogram IMO is one of the earliest indicators for a change in trend that I know off.

I also use EMA 12/26 (cradle zone , area between the two EMA's) as support and resistence, as price action frequently bounces of these averages.

Over the last few months I have been trying to learn the breakout/breakdown Strategy.  When the price becomes very very tight and within a narrow range it is usually followed by an explosive break up or down.  Knowing the important suppport and resistence (for me i use the 4hr/daily) and then anticipating, if and when they get broken will very likely result in significant price movement in that direction following accordingly.

I lastly look at the Vwap and use it similar to the EMA's becuase many many traders use vwap too for entries and exits.

3  Economy / Trading Discussion / Why are their no stickies for common questions on this board??? on: August 02, 2018, 06:28:34 PM
Ive been back on these forums for over a week, many of the same questions are getting repeatedly asked

Which coins to buy?

How to trade?

Exchange questions?

Blah, Blah , Blah

Now im not knocking newbies, as We were all newbies once.   However stickies topics are a must!  which will make this a more enjoyable and good discussion forum. Plus many answers will be readily available members.

4  Economy / Trading Discussion / Are alts heading to 0 earlier then we thought? on: July 31, 2018, 07:15:58 PM
The alt coin market has been in decline for considerable amount of time.

There are many new coins coming on to the market daily and performing poorly on listing.

Look at the last 5/10 coins that have come onto Binance…. most have dumped immediately on listing,  possible by early investors or ico buyers.

Other than occasional increase in value, the trend has been very very bearish...

Many analysts have already said, the value of many alts is 0.   So the question im asking is could the move to 0 already have begun.

Why are many on these forums very bullish and hoping for a rise in value that may never happen.

Without a doubt many of these projects have failed and many many more will fail within the next 12/24 months due to the drying up of funds for project teams.

So the big question is... is it time to sell up on many of these alt coins, that will go to 0 or will you continue to HODL
5  Economy / Trading Discussion / Your cryptocurrency journey..... on: July 31, 2018, 01:52:42 PM
My crypto journey began in October 2017.....

From an Investment of 10k I am down to about 5K.....Had I not traded at all, I would very likely have 20/25k

A bit dissapointed you would think... Well not really just slightly annoyed at some of my decisions.

I am actually very happy that I did trade... Jumping in the deep end as i did I learned valuble knowledge that will hopefully help me to achieve my goals in the future.

Trading without knowledge made me learn about my mistakes, how professionals trade and the strategies they use and most importantly trading experience.  It is trading experience that will teach and help you control and improve your emotions.

I learned and educated myself about both fundamental analysis and technical analysis, candlestick patterns and formations, about trading view as well as learning about margin/levergage trading.  I had the confidence to try and move into stocks a few months ago and opened a small stock trading acount with tradenet using many youtube traders of stocks for guidance and education and have a goal of having a larger trading account in a few years time.

I believe you can learn greatly using freely available resources like youtube, udemy,forums, and many many available websites.

You must be prepared to lose some capital for the purpose of your trading journey as most professional traders have done.  Many good professional traders become successful after YEARS of learning and trading.

BEFORE you trade with larger account values.. I think the it is essential that you have learned the basics such as having a trading strategy as well as having some understanding of risk/reward.

One of the biggest mistakes I made was trading with my entire account value as new trader.
The account value is secondary to having good trading knowledge, and consistently making correct trading calls in growing your acount as well as having realistic targets.  A target of 100% growth anually is an incredible target to achieve, which is just under 3% per week for an professional trader never mind a newbie trader.  Thinking long term Is also important, imagine if you can grow your account by 100% anually, how much capital will you have in 10 years

If you can consistantly grow your small account their is no reason why the same wont apply with a larger account as a trader.  Preserving your capital is the most important aspect of trading.   Never feel like you have missed out or FOMO, as their will ALWAYS be another opportunity to make profit on a trade if you missed out on something.

6  Alternate cryptocurrencies / Altcoin Discussion / Better to buy alts with bitcoin or ethereum? on: December 04, 2017, 07:31:38 PM
Can someone give a thorough explanation as to the difference in buying altcoins with bitcoin, etherium, tether, ltc etc.

I have been purchasing alts with bitcoin on btx.  However I have read a few posts on reddit saying you should use ethereum to make purchases and NOT bitcoin.

Can someone explain the differences in purchasing with different methods?

pros and cons, if there are any?

If there is cost implications?

Your valuble information wil be greatly appreciated
7  Economy / Trading Discussion / What research do you do before you make a trade on a coin? on: November 16, 2017, 09:00:38 AM
I would like to know what research the full time day traders do before trading any particular coin? and what their trade entry and trading procedure is during the day?

Do you have a daily take profit target?

Do you go by a checklist before making a trade entry?

Do you Look at an exchange and make a trade entry on a coin going up by a certain percentage?

Do you mostly buy/sell your positions on the same day?

I know its a lot of questions and will generate different answers by different traders and probbably answered somewhere already, but this help would be extremely useful to a newbie like me.

I do understand the basic concepts fundamental analasis and technical analasis etc when looking at markets and know that news and trend patterns are what most professional traders look at.

8  Economy / Trading Discussion / How much capital to you day trade with? on: November 13, 2017, 09:58:02 PM
What sum of money do YOU day trade with? and how much profit do you expect to earn?

It would be interesting to know how much gains (if any), different traders make on a daily or weekly basis and what sort of capital they invest to try and profit.

Looking at many of of the exchanges, you see many alt coins going up by two digit gains so I would assume capital investment of between £1/5k on some of the ascending coins would bring back a decent return?
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