Discussions about whether extended leverage is good or bad have gone on for a long time. Let us nevertheless explain what this term means for the uninitiated.
Leverage is the maximum amount of borrowed funds that a broker, in this case NordFX, is ready to provide a trader with for trading. A 1:1000 leverage ratio means that borrowed funds an exceed your own invested capital 1000 times. Such a loan is provided instantly, automatically and without any collateral requirements.
Strategy 1.
Suppose that your own funds make up $100 in your account. If one bitcoin costs $10,000, combining this starting capital with a leverage level of 1: 1000 will enable you to buy as many as 10 bitcoins coins costing $100,000 in total (with a small downwards adjustment to account for the broker commission).
Statistics show that the average hourly rise in the price of Bitcoin is $300. Thus, in this case, you will earn $3,000 dollars on top of your original 100. That is, in just 60 minutes, you will multiply your capital by 30 times. This is a pretty impressive result.
"So, what is the problem?” you may ask. “Why do some consider leverage to be unhealthy?" The thing is that if the price starts to fall, your money will melt as quickly as it grows. The broker will not, of course, allow you to lose $3,000. The maximum loss will be exactly equal to the size of your deposit. That is, once the loss reaches $100, the transaction will be automatically closed. In order for this to happen, however, Bitcoin has to fall in price by just $10, and this, considering its volatility, can happen in a matter of a few minutes or even seconds.
"People like taking risks," says John Gordon, senior analyst at NordFX, ";and there's nothing to be done about it, especially when it comes to money. They always want to get rich in an instant. This is where self-control becomes essential. After all, you can open a transaction for less than $100,000, perhaps for $50,000 or $25,000. Yes, the profit may be smaller in these cases, but so will the risks.
Leverage is just a tool, an additional bonus, and it is for the trader to decide whether to use it or not. In the right hands, this is tool that can be extremely useful"
Strategy 2.
Suppose you have $1,000 in your account, for which you can normally buy 0.1 BTC. If you take on leverage of 1:1000, however, then the same purchase will cost you just 1 dollar, instead of one thousand. $999 will remain in your reserves for the event the price falls. Such a reserve will allow you to continue purchasing as the price keeps falling. When the price finally performs a U- turn and resumes growth, you will increase your chances of not just covering your losses, but also making a profit.
Such trading strategies, known as ";averaging positions" and the "martingale method"; (see the Figure), have become especially relevant since the middle of December 2017, when cryptocurrencies, after months of continuous growth, began falling. It is, however, necessary to note that while they have been implemented for a long time by many traders, they also carry considerable risks and should be wielded with great care.
"The 1:1000 leverage ratio that NordFX provides,” continues John Gordon, “is unique in the cryptocurrency market. Typically, clients are offered margin trading with leverage ranging from 1:3 to 1:100. But there is another important point that makes trading through a broker different from trading on a crypto-exchange. If you buy a bitcoin on an exchange, you will only be able to earn on its growth; with us you can also open a transaction to sell and make a profit even if the price falls. This is akin to a bet that you make with a broker to see whether the price of bitcoins rises or falls.
In addition, you can conduct several transactions at once: some to buy bitcoin, and some to sell it. Upon observing whether the price of the cryptocurrency is rising or falling, you can quickly close the losing transactions and leave those that are delivering a serious profit open.”
“Currently you can transact with six of the TOP 10 most popular cryptocurrencies in NordFX,” concludes John Gordon. “These are Bitcoin, Litecoin, Ethereum, Dash, Ripple and Bitcoin Cash. The account can be opened in either USD or BTC. Traders also have many trading strategies, technical analysis tools, indicators and trading robots at their disposal. This huge arsenal can be of great assistance in reducing trading risks and increasing profits. But the way you use it ultimately depends only on you."
To begin, go here.
Information provided via press release.
