How to use market volumes for investment strategies in cryptocurrency
Cryptocurrency has recorded rapid growth in the past ten years, many investors flowed this class of digital assets. As a result, market volatility and price fluctuations have become more pronounced. In the attempt to mitigate these risks and possibly increase earnings, some investors turn to the trade strategies. However, starting is not without your risks, and it is important to understand how it is right.
What is leverage in cryptocurrency?
The leverage trade includes the use of money or credit to increase the potential performance of an investment. When trading cryptocurrencies, this means that the use of funds is used that have been borrowed in order to exchange more important positions with lower beginner capital amounts. The lever factor is calculated as a ratio of the amount you want to invest (the “leverage”) to the amount you borrow from a broker (the “borrowed” amount “).
For example, if you are interested in negotiating 100 Bitcoin units, but only need 1,000 US dollars for the borrowed funds, your leverage would be 10: 1. This means that you may be able to negotiate up to $ 10 $ .
Advantages of leverage in cryptocurrency
The lever trade offers several advantages, including:
* Increased potential yields : By using your initial capital, you may earn more than what you would do with a traditional investment.
* Legal risk : If the market accumulates against you, you can use a lever to compensate for part of this loss and maintain a chance of winning.
* Flexibility : The lever trade enables you to negotiate larger positions in smaller quantities, which makes it easier to manage your wallet.
How to use market volumes in cryptocurrency
To use market volumes, follow these steps:
- Select a renowned broker : Choose a well-established or brokerage cryptocurrency Exchange company that offers leverage.
- Select the correct leverage : Determine the lever with which you are comfortable and select the corresponding lever amount according to your risk tolerance and your investment positions.
- Select the right couple of the cryptocurrency : Make sure the leverage is applied to the right few cryptocurrency, whereby the market conditions and price fluctuations are applied to consideration of the reports.
- Set a position size : Calculate how much you want to invest in each stock exchange according to profit targets, desired risk management strategies or the entire portfolio.
Risks of leverage in cryptocurrency
Although the use can be advantageous, it also includes considerable risks, in particular:
* Increased leverage costs : The higher leverage amounts mean higher costs and commissions.
* Volatility of the market : The cryptocurrency market is subject to extreme price fluctuations that can result from unforeseen events or changes in market feelings.
* Liquidity risk : If the position does not become profitable, you may not be able to sell your shares quickly enough to cover the losses.
Best Practices for the leverage trade
To minimize the risk and maximize potential earnings if you use the market volume, follow the following best practice:
- Start with quantities of low leverage : Start with a lower leverage and gradually climb when you feel more comfortable with the strategy.
- Use stop orders : Define a stop-loss command to limit your losses if the market accumulates against you.
- Monitor and set : Continue continuously and fit the size of your leverage or the size of the position if necessary to maintain optimal risk management.
- Use : Stay with market developments, trade regulations and strategies up to date to ensure that you are well informed and prepared for potential challenges.