How To Minimize Losses On Bitcoin Margin Trading?

Margin trading is definitely a useful way to increase your profit. But we cannot simply deny the fact that it comes with a high risk. Margin trading is considered to be highly risky since you are required to repay the margin loan to your broker regardless of whether you made a profit or loss in your trading activity. So the question is, how to minimize losses on Bitcoin margin trading?

Well, there is no go-to formula to minimize losses when you margin trade. But there are definitely a few points that you should keep in your mind. So let me go ahead and talk about them in brief:

How To Minimize Losses On Bitcoin Margin Trading?

1. Never Use Too High Leverage

You should never use way too high leverage for your trades. Most exchanges offer you leverage up to 100x. But you should not really use the 100x leverage for your trades. Of course, by using 100x, you will enjoy a greater profit. But what about the losses?

As the crypto market is extremely volatile, a slight movement of the market against you could turn out to be a huge loss for you. Even your entire stake could just go to zero.

Although, this can be prevented by using a stop loss. But your stop price must be extremely tight compared to the liquidation price. So the price has little space to go up or down. If you put your stop loss just below your buying price, then you can lose your funds, and after that, the price will go up.

Instead, a good idea would be to use about 2-5% of leverage for your margin trading if you are an absolute beginner. However, if you are an advanced trader, then you can consider using 10-15% of the leverage margin.

But this is just my point of view, you can decide your percentage depending on how much risk you can take.

2. Start small

When you are at a beginner level, make sure to start small. You should always use funds that you can afford to lose.

This way, you will be able to gain confidence and experiment in the market with different strategies and focus on how to trade. In the early days of your trading, you should not focus on getting maximum returns. Instead, you need to focus on polishing your trading strategies.

You should practice with low levels of leverage and get used to how margin trading works, how much fee you have to pay, and the overall trading ecosystem. And once you have gained enough experience, you can start using higher leverage and focus on maximizing your profits.

3. Use Stop Loss

When it comes to trading, stop loss should be your friend. By placing stop loss orders, you can control your losses. Plus, it will ensure that you are not losing all your money.

For instance, if you have a trading capital of $500 and you are betting about 2% in a trade, then you will only lose $10 if the market doesn’t favor you.

As a result, you still have your $490 with you. But if you are increasing your stop loss to $5 then you will lose $25.

But in case there is no stop loss and the market suddenly hits bottom, you may end up facing a bigger loss. So to control your losses, always make sure to use a stop loss.

4. Risk Management with a Trading Diary

A majority of the traders don’t keep a record of their trades. And if you are doing this, then it is a good time to stop.

If you have noticed that most of your trades do not turn out to be profitable, then it is important to analyze your trades. So you can figure out why your trades are not working.

For this, you can keep a diary where you record all your trades with their entry price, expectations, profits, and losses, stop loss orders, and other details. You can also point down your thoughts on why you are taking the trade.

So when you sit down to analyze your trades, you will know what was happening at the moment of trading and what are your strengths and weaknesses as a trader.

5. Be careful of major news events and decisions

Always make sure to follow news and be extra cautious of upcoming events or news which can potentially harm the market. In case there is bad news about Bitcoin, you can choose to avoid trading that day. Similarly, if there is good news, you can trade using a good leverage percentage.

Just by being aware of what is happening in the crypto industry, you will get insights into when to trade and when not to. 

Top Exchanges to Margin Trade Bitcoin

1. Binance

Binance is one of the largest cryptocurrency exchanges out there. It offers maximum liquidity and trading volume and has the highest number of users.

The exchange also supports margin trading, which a user can easily get started with. To get started with Margin trading on Binance, you will need to complete KYC verification, and the exchange should be operational in your country.

Also, it offers you a margin insurance fund. So in case if you go bankrupt during margin trading and you don’t have any assets to pay off your debts, then the exchange will repay your debt from its insurance funds.

Moreover, you can use margin trading for both short and long positions. Binance allows 10x on spot trading and up to 125x on derivatives trading.

The interest rate on borrowed amounts changes frequently. Also, you can your margin trading interest rate using BNB, which is Binance’s native coin, to save 5% on interest.

2. FTX

FTX is another well established crypto exchange available out there. It offers a huge amount of liquidity and has a 3 tier liquidity protocol and FTX insurance fund.

By default, all the positions on FTX use the same collateral pool. Also, each sub account has one collateral wallet and uses cross margining for the account.

Plus, a user has an option to use a particular margin in isolation. On FTX, you can enjoy up to 101x leverage across its product.

Similar to, FTX also offers a wide range of leveraged tokens. However, it doesn’t cater to the US residents. Instead, you have to use their domain.

3. Bybit

You can also check out Bybit, which is a specialized derivatives trading platform. The trading platform deals in a wide range of perpetual and future contracts. Also, it offers one of the cheapest trading fees, and it stands out to be a no KYC exchange.

But if you want to use third party services like fiat trading, then you will be required to complete KYC. The trading platform also has a great market depth and liquidity, which makes it one of the best platforms for margin trading.

On Bybit you will enjoy up to 100x of leverage. Plus, it offers its own insurance funds, which can be used for recovering losses if you go bankrupt.

Final Words:

So that was all for how you can minimize losses on bitcoin margin trading and the two best exchanges to enjoy margin trading. In case you have any more questions, do comment below.