10 Tips To Master Margin Trading
If you are starting in margin trading, there must be many questions on your mind. Indeed, margin trading is more complicated when compared to spot trading. But it doesn’t mean you can’t try it and succeed.
We have selected ten must-read tips for those who want to begin their way in margin trading. Check them out and become more confident in your skills!
1.Start slowly but surely
For those who have no experience yet, it’s better to start with small amounts of funds you can afford to lose. This will help you to perfect your margin trading skills and try out new strategies.
Try to begin with smaller leverages to get used to the process of margin trading. Once you’re ready, you can slowly add in more funds and repeat the strategies proven to be successful.
2.Track major news and events
Pay attention to what’s going on in the world, because significant events can affect the market and become a deal-breaker for a trader.
3.Take the liquidation price into consideration
Always keep the liquidation price of your position in mind.
When the liquidation price is reached, your position gets automatically closed at the current market price, and the borrowed funds that were used to open it get returned.
Before the liquidation happens, a user receives a margin call. It is a notification of a user about the fact that the position is unprofitable and may soon be liquidated. In this case, a user can choose one of these options:
• keep the position and increase it;
• lower the current margin position;
- close the position.
4.Use Stop Loss orders when possible
Not all exchanges offer Stop Loss orders for margin trading. However, it is the ultimate risk management tool. They can prevent significant losses when trades go not as you were expecting. But keep in mind that if a Stop Loss is too close to your purchase price, you may get stopped out too early.
5.Spread out your buy orders
Try not to place large orders right away. This lowers your risk because you can adjust if the situation on the market changes. Plus, with smaller amounts, you can have a more controlled and profitable trade.
6.Have extra funding prepared
Never opt for risking everything at once. This can cause significant losses that will affect your trading career, so it’s better to keep some extra funds on a separate balance. This will allow you to hedge your bets and average down if trades go the wrong way.
7.Keep an eye on your positions
Margin trading is nothing like staking where you can put in your funds, sit back and relax for a certain period of time. The market situation is quite unpredictable, and you can’t afford to ignore it for weeks. It’s because any wrong move can lead to a notable loss of funds. Monitor your trades and react immediately if anything goes wrong.
8.Find what works best for you: Hot or Cold storage
When it comes to margin trading, you don’t need to always keep all your funds on an exchange. The best way to make sure that your funds are secure is to store them on a cold wallet (also referred to as an offline wallet). Only the amount that you require for trading should be kept on an exchange. This lessens your risk and ensures that you have extra funds available if the market goes not as you expected.
9.Stay away from speculation
Trading without proper research is something similar to gambling. Things may go your way a few times, but it will probably lead to significant losses in the long run.
10.Pay attention to fees and conditions
There are practically no exceptions: margin trading has various fees that depend on the exchange you use. However, the difference can be huge. So keep in mind that forgetting about the fees can even lead to losing your funds despite succeeding in trading.
Plus, it’s important to read margin trading conditions, as every exchange has its nuances that can affect the trading process.
