Profits! That’s the name of the game and the aim of every trader. The higher the promise of profits, the better for the trader. But in Margin trading, it could go either way. That is why we recommend following these powerful expert tips for Margin traders.
A recap of margin trading
We can compare Margin trading to buying securities on credit. It is a method under leverage trading where the trader borrows money to lever or raise the value of their trade. Once the trader boosts their purchasing power, they, in turn, expect inflated profits. However, if small price fluctuations in the market go against the trader’s anticipation, it could generate heavy losses.
That notwithstanding, experienced traders who trade short sales or go for long positions can observe some precautionary measures when trading on Margin. We have compiled valuable tips and investment strategies to help you stay afloat and gradually increase your profits when Margin trading.
Best tips to maximize returns on margin trading
This list is a must-read for both novice and experienced traders. Before you embark on Margin trading, kindly go through them and apply them accordingly. Best of luck!
1. Start small and understand the potential losses
This tip is especially for traders in their initial stages of trading. Bet on low amounts that you’re comfortable losing. This way, you’ll gain the needed experience and confidence as you learn different strategies. Don’t be lured and carried away by the prospect of maximum returns. Even experienced traders need caution when Margin trading due to the volatility of these markets. Some exchanges may even limit your leverage at the start to prevent you from making unwise decisions from the get-go.
2. Risk management is the name of the game
Whether you’re Margin trading with stocks or cryptocurrency, you need to manage your risks properly. If you’re considering trading on Margin, and especially if you go at it with cryptocurrencies, chances are you are not risk-averse. However, the risks involved in Margin trading are too enormous for you to take one position and stick by it. A successful trader knows when and how to leave risk on the table as well as how to entirely de-risk.
Moreover, balance between hot vs. cold storage to avoid liquidation and pay attention to Margin calls. Another sound risk management tool in Margin trading is a stop loss that helps avoid significant losses. It will also help if you spread the buy orders over longer spans.
3. Avoid holding open margin positions for extended periods
Like almost everything else in the forex market, interest rates are highly volatile and fluctuate regularly. Thus, to avoid extended interest-accruing loans, use Margin trading for scalping and daytrading. Avoid keeping an open position overnight.
4. A firm grasp of technical analysis, the fundamentals, and trends
This is what sets apart expert traders. Do you understand the difference between resistance and support levels? Would you comfortably know how to use MACD and RSI indicators? Such technical analysis will place you at an advantage in Margin trading. Moreover, you’ll be better positioned to develop and execute a rigorous trading game plan.
Aside from the technical analysis, avoid going against the trend. Go with the flow and keep up with recent news in cryptocurrency and exchange markets. Keeping up with the latest from sites such as Cointelegraph, Binance, and Coindesk will polish you up to be a well-rounded trader. If you don’t understand the technical analysis in Margin trading, be alert to major news and decisions at the very least.
5. Avoid overtrading and NEVER go all in
You may be on a winning streak, which sometimes feels like a rollercoaster ride. But this is extremely dangerous when it comes to Margin trading. Remember, Margin trading is not like spot trading; it calls for an active trader. Nevertheless, the trader should know when to press the red and yellow buttons to avoid getting attached to markets. This would additionally help you observe the markets and unemotionally jump on the best opportunities. Similarly, if your candle is glowing red, cut your losses as early as you can and avoid the temptation of doubling down on your investments.
The rule of law in the Empire of Risk Management is, NEVER GO ALL IN! The crypto and forex markets’ key to success is longevity. Going all in is the simplest way to have your funds dry up faster than you could say, “holy moly.”
Keep this in mind when trading on margin
As you embark on your journey, remember to be intentional and set goals. Also, keep a tight check on your portfolio, especially if crypto trading. Note that aside from the volatility and unpredictability, the cryptocurrency asset class is yet to receive uniformity in regulations worldwide. Finally, thoroughly research the exchange platform before considering Margin trading to avoid losing funds from questionable operations.
There you have it, the best tips to be on the safe side when Margin trading. If you are still a novice, use a demo account to improve your Margin trading skills. Next, set goals to develop a game plan, and stick to it. However, you should be flexible whenever the plan is not working. Avoid getting carried away with emotions as it can cost you dearly. Endeavor to learn the best risk management practices in trading as you learn the technical analysis and fundamentals of Margin trading.