Bitcoin Leverage Trading in Nigeria
What is margin trading?
According to stock market terminology, margin trading is trading in the stock market with borrowed funds or leveraged trading.
From individuals to large corporations, many people resort to using borrowed funds for various transactions. And everyone can use them for their purposes.
To increase their profits, a company can borrow money to supplement their working capital, produce more products and earn more profits.
The principle is precisely the same on the stock market. With a certain amount of capital, an investor can borrow additional funds, make a trade with more funds and get much more profit than if he had only made the trade with his funds.
This article will review the main critical points related to margin trading. They should be known by every investor who resorts to margin trading.
So we will consider:
- What are margin trading and its basic principles?
- What is Bitcoin leverage trading?
- What you need to know about margin trading tools.
Basic principles of margin trading
Margin trading is trading with borrowed funds. In this case, the borrowed funds are provided by the broker himself. For example, a broker may provide cash and securities and cryptocurrency for margin trading, such as Bitcoin. Also, in exchange slang, margin trading using borrowed funds is called "leveraged trading".
Borrowed funds are used to open "long" leveraged positions, i.e. buying cryptocurrencies more prominent than leveraged capital allows.
When leverage from the Bitcoin leverage trading platform is provided in the form of cryptocurrency, it is used to play "down" in the market and open "short" positions in equities or "shorts". This is necessary for investors to profit from a fall rather than a rise in the stock market or individual stocks. Opening short positions also fall into the class of margin trading, as it uses borrowed cryptocurrencies provided by the broker, i.e. Bitcoin trading with leverage.
Investors resort to using leverage for one purpose only, which is to increase profits.
Let's consider a practical situation. An investor has a capital of $100,000. At the beginning of 2020, he could buy 2 Bitcoins with his money for X price. Then the price went up, and if the investor had sold them, the investor would have a profit.
And in the case of Bitcoin leverage trading, the investor could borrow funds from the Bitcoin trading platform with leverage, which would be three times his capital, for example. So the investor can make a much bigger deal and thus make a big score.
We can see that by using borrowed funds, the investor could increase the return on his deal by four times.
This is why, in the market terminology, you may often hear, in a turn of phrase, that "the trade is conducted with the third leverage" or, for example, "the deal is opened with three leverages", which means that the volume of borrowed funds provided by the broker is three times higher than the investor's own funds. And the investor accordingly has the potential to make a 4-fold increase in profit or, conversely, make a 4-fold loss.
In other words, the term "leverage level" on the stock market means the ratio of investor's equity to leverage.
Trading rules and risk management tools forBitcoin leverage trading
Leverage is a risky tool. Therefore, if a trader will engage in margin trading in Nigeria and take the risk, he should follow some simple rules.
1. A margin call.
If the quotes go in the wrong direction, the user will soon get notified about possible liquidation. A margin call does not require any action from the trader. But he has a few options to manage the risks:
- Increase the amount of collateral. By increasing the deposit, the user moves the liquidation level away. As a result, the margin call mark is also moved.
- Reduce position. If the trader does not have free capital, it is possible to close the position partially. He will lose some of his funds, but the equity will increase proportionally to the remaining assets.
- Do Nothing. After a margin call, a reversal may occur. In this case, the user will not lose anything and eventually break even. However, if the price continues to move, there will be a liquidation of the position. In this way, the trader will lose most of the collateral.
The name Margin Call appeared in the USA when brokers contacted investors by telephone, warned them of the possibility of closing a position and offered to increase the deposit. Today, notifications come by email or through the terminal. However, the market is changing so fast that there is no time for calls.
2. Stop loss.
Useful tool in risk management when trading cryptocurrency on margin. The trader sets the allowable amount of loss on his own. For example, suppose that a user bought BTC at $70,000 with 1:5 leverage and a margin of 14,000.
The stop loss is set at $68,000. If the asset price falls to the specified value, the position will close automatically. The trader will lose only $2,000, excluding the commission.
3. Take profit.
This tool is intended for profit-taking. For example, when buying a BTC for $70,000, the take profit is set at $75,000. When the quotes touch this value, the order will close, and the user will profit $5,000.
Stop-loss and Take profit are not mandatory tools. However, experienced traders prefer to use such orders for risk management.
How to choose a Bitcoin trading platform with leverage
Those looking to do Bitcoin leverage trading in Nigeria look at several parameters when searching for an exchange:
- Fiat support. If the exchange offers deposit and withdrawal in USD, it makes buying cryptocurrency easier. Otherwise, the trader will have to use third-party services to purchase the digital asset first and then fund the account.
- Reputation. Before registering, you should read the reviews of other users. The more traders trust the platform, the better.
- Regulation. The head office of a Bitcoin trading platform with leverage should be under the jurisdiction of a country that is loyal to cryptocurrencies. If local authorities prohibit the exchange of digital assets, it will block investors' accounts.
- Trading volume. The higher the liquidity on an exchange, the faster the large amount of transactions are made. Not only the overall figure is taken into account, but also data on individual pairs.
- Interface. Not all platforms provide information in Russian. Therefore, newcomers may have difficulties when making the first deals.
- Number of coins. Large exchanges offer to trade not only bitcoin but also more rare tokens. As a result, their volatility and growth potential are sometimes higher than the first cryptocurrency.
How to start Bitcoin trading with leverage?
To start leveraged trading in bitcoins, please register on the platform's website. Registering is a relatively straightforward process.
If you are using the IQ Option platform for the first time and are new to trading, please watch the instructional videos first. After that, you can practice on a demo account and then continue trading with real money. Additional information about trading is available on the IQ Option blog.
What are Buy Time and Expiry Time?
There are two timelines on the chart. Buy time is the white dashed line. The expiry time is the solid red line. After the crossing, the position will be automatically closed, and you gain or lose money. You can choose any of the available expiry times. If you have not yet opened a trade, the white line and the red line will move together to the right, showing the last buy for the expiry time indicated.
What are profit on sale and expected profit?
The "investment amount" is the amount you put into the trade.
Expected profit is the possible outcome of the trade if the chart point on the expiration line is at the same level as it is now.
Gain on sale: Red indicates how much invested you will lose after the sale. Green indicates how much profit you will make after the sale.
The expected profit and profit on sale figures are dynamic and depend on some factors, including the current market situation, the proximity of the expiry time, and the asset's current value.
Many traders sell when they are unsure whether a trade will close in profit. The selling system allows you to minimise your losses.
The volatility of cryptocurrencies is too high, so leverage above 1:5 is not recommended. However, if you make a trade with a margin of 1:100, liquidation in the cryptocurrency market can happen instantly due to large fluctuations. This kind of leverage is suitable for trading in hard currencies like USD and EUR. These assets rarely fluctuate by 1% or more over a day.
The second name for margin trading is leverage trading. Leverage is a ratio of own deposit to the amount of the working lot. To receive this kind of credit it is necessary to have your own funds in the trader's account. The minimum of the initial deposit is different and depends on the requirements of a certain broker.
In trading, "leverage" is an opportunity that allows traders to enter into larger trades in financial instruments than they would be able to afford with only the equity available in their trading account. In other words, this feature allows traders to use funds borrowed from a broker to increase their market presence or trading position with the expectation of increasing investment returns. Learn to earn more, strive, and you will succeed. Good luck!