How to use market volumes for investment strategies in cryptocurrency
The cryptocurrency has registered a rapid growth in the last decade, with many investors who have come to this class of digital assets. As a result, market volatility and price fluctuations have become clearer. Trying to reduce this risk and increase yields potentially, some investors resort to commercial strategy. However, the lever is not riskless and it is necessary to understand how to do it correctly.
What is the trade with the crippoRrency lever?
The lever trade includes the use of borrowed money or credit to increase potential profitability of investments. In the trading of cryptocurrencies, this means the use of borrowed funds for trading larger articles with smaller amounts of initial capital. The lever factor is calculated as the ratio between the amount you want to invest (the “amount of the lever”) to the amount you have to borrow from the broker (“borrowed amount”).
For example, if you are interested in trading 100 Bitcoin units, but you only need $ 1000 for borrowed funds, your lever is 10: 1. This means that for each dollar invested, you can replace up to $ 10.
Benefits of cryptocurrency transactions
Lever transaction offers more advantages including:
* Increasing potential profitables : Using the initial capital, you can earn more than what you would do in a traditional investment.
* Reduced risk : If the market moves against you, you can use the lever to balance some of this loss and continue to keep the chance of profit.
* Flexibility
: The lever trade allows you to trade larger positions in smaller quantities, facilitating portfolio management.
How to use market volumes in cryptocurrency
To use market volumes, follow the following steps:
1.
2.
3.
- Set the position size
: Calculate how much you want to invest in each trade based on the desired profit objectives, the risk management strategy or the general allocation of the wallet.
Risk of trade with lever in cryptocurrency
Although the lever can be beneficial, it also has a significant risk, including:
* The increased costs of the lever : The higher amounts of the lever mean higher taxes and commissions.
* Market variability : The cryptocurrency market is subjected to extreme prices that can result from unforeseen events or changes in the moods of the market.
* Liquidity risk : If the position becomes unprofitable, you may not be able to sell the actions quickly enough to cover the losses.
Best lever trading practices
To minimize the risk and maximize potential yields when using market volume, follow best practices:
- Start with a low lever : Start with smaller amounts of levers and gradually increase when you feel more comfortable with the strategy.
2.
- Monitor and personalize : Continue to monitor the portfolio and adjust the amount of lever or the size of the item, if necessary, to maintain optimal risk management.
4