One of the biggest issues you will face when you start trading is deciding whether to keep a position for long term. You can keep an asset with you for as long as you want in the conventional markets. However, the cryptocurrency market is not the conventional market and thus you have to adapt to the differences that it comes with. Bitcoin is the biggest cryptocurrency out there, which requires you to spend a lot of money to buy even one unit. To some degree, new traders would not even be able to trade bitcoin, if they had no benefit of the leverage.
When you sign up with an online broker, you can take advantage of a thing called leverage. If you are into CFD trading, you will enjoy leverage with just about any online broker. You might not get the same if you are trading with traditional assets and instruments. However, when you trade CFDs, you are guaranteed that there will be some sort of leverage from the broker for you. But what exactly is leverage? Leverage is the contribution that comes from your broker in your trade to allow you to control a big trade.
So, when you are in the market, you want to trade to make huge profits. However, huge profits can only come from huge investments. If you are investing in only a limited number of contracts, even a big price hike will translate to a very small earning for you because of the number of units you are trading. On the other hand, if you are trading lots of units of a particular asset, even a small change in price will result in a huge gain for you i.e. you will be profiting on every unit that you have invested your money in. That’s exactly what leverage is supposed to help you with.
It allows you to control big trades by investing a lot of money. Where does that money come from when you trade with an online broker? Well, it is your broker that provides you with the leverage option. The bigger the leverage from your broker, the bigger the trade you can enter. And the bigger the trade, the more profit you will make if things go in your predicted direction.
Why Leveraging Bitcoin
You have to leverage bitcoin because it the most valuable cryptocurrency out there. If you do some research, you will find out that for a new trader, he/she cannot even trade a few hundred units of this cryptocurrency because it will cost them hundreds of thousands of dollars. The broker is trying to help you invest your money in bitcoin without putting all of it on the line. So, when you leverage, you use only a small portion of the funds you have in your account and the rest of the funding comes from your broker.
At the end, you benefit by big margins if the trade is successful because of the many units that you have invested your money in. Do keep in mind though that the broker also requires you to maintain a minimum in your account before you can enter a leveraged trade. This minimum amount in your account is called the margin.
Can You Leverage Bitcoin for a Long Term Position?
Sure, there are more options than you might realize to keep your bitcoin position for a long time. It does not matter how much leverage you are getting on your trade, you can continue to hold the position for as long as you want. Yes, the broker is putting itself at some risk by allowing you to hold a long-term bitcoin position despite the leverage, but you are doing the same. If you keep on holding the same position for a long time and then bitcoin price moves in a direction that you had not predicted, you could end up with a huge loss.
At this point, you also have to understand that there are different types of conditions associated with long-term positions. For example, you will have to pay something called funding when you are holding a long position on bitcoin with leverage. What that means is that you will have to pay a small amount to the broker who you are working with after a specified interval for as long as you are holding that position. This particular funding fee is to be paid when you are holding the long position though. If you are holding a short position, you will be given help from the broker.
The most important thing here is to know how much you will gain in the long run if you keep on holding your bitcoins for a long time. At this point, you should get help from online experts and traders who can tell you how much you will benefit from holding a cryptocurrency for a long time. An important note that you have to make here is that the more the price of bitcoin increases, the rate of return starts to become smaller. Yes, you are still profiting from your position but the size of the profit on each tick is becoming smaller.
In the end, you have to find that sweet spot where you will be willing to sell your bitcoins back into the market for earning some profit. Do make sure that you understand all the caveats attached to using leverage when trading CFDs. The cryptocurrency market shows a lot of volatility and hence you can end up with huge profits and losses.
When you enter your trading career, you should have already made up your mind about the way you will trade in the market. If you are a day trader, long-term investments are not even a point of concern for you. However, if you are considering long-term investments, you have to see what value you will obtain for spending how much time. If you have to wait for several months to make a profit of just $2000, you are better off trading every day and making small profits because they will amount of something bigger than $2000 after some months.
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