Altcoins market is overall bearish along with Bitcoin Market. We all generally trade altcoins, bitcoin on exchanges like – Binance,coinbase, bittrex etc. So basically when market is down, we are losing money. What if, you can make good profits when market is going down or even if its going up. Sounds good?

Yes thats called leverage trading, where you can get upto 100x leverage on bitcoin from exchange to long or short bitcoin or other crypto. Many of you may know the platform called BITMEX for leverage trading. We will try to explain how we can leverage trading on bitmex in this post.

How to Leverage Trade on Bitmex

Launched in 2014, BitMEX is an international crypto currency exchange which offers margin trading with leverage up to 100 times Bitcoin. The platform provides varying leverage on different coins and though it has a limited selection at present as compared to other crypto currency exchanges, it has a respectable trading volume especially for Bitcoin.

One of the key factors that have made BitMEX a preferred exchange for crypto is the security it offers. Another is the leverage trading that it offers. The BitMEX platform offers differing amounts of leverage varying from product to product. That is to say BitMEX provides an opportunity for traders to turn the bear markets into profits. Traders can use the BitMEX platform to leverage trade against a number of coins including Bitcoin, Ethereum, Dash, Ethereum Classic etc.

What is leverage trading?

Leverage trading is a way of borrowing capital with the intention of increasing the potential return on an investment. When you leverage trade, the lender keeps a part of your holding as collateral for the borrowed capital. If you make profits and successfully close your position, the collateral is returned to you along with the profits you have made. In case your investment turns upside down, the trade is automatically reversed after a set liquidation price and the collateral is liquidated.

An example:

Let’s understand leverage trading with an example. Two friends, P and Q are looking for an office space with a budget of $10,000 each. P finds an office space worth $100,000 and applies for a bank loan. The bank will take 10% of the loan amount (i.e. $10,000) as security and grant the loan. P successfully buys the house.

Now, Q did not want a loan so he kept hunting and found a space for $10,000. He spends his savings and buys the office space that is exactly in the budget.

3 years into the future, let’s assume the real-estate market went up by around 50%. P and Q both sell their office spaces making $150,000 and $15,000 respectively. P pays $100,000 to the bank and keeps the $50,000 as the profit while Q only makes a profit of $5,000.

What P did here is leverage trading. That is he traded with more capital than he had.

How to leverage trading on BitMEX?

To leverage a trade, you need people who are willing to give you the leverage amount (like the bank in the above example). In the world of crypto currency, this role is performed by crypto exchanges such as BitMEX.

The first step to leverage on the platform includes register yourself as a user and deposit some amount in crypto. The registration process is simple—it asks for your email, full name, residence country, and a password. This is followed by a CAPTCHA and account verification via the entered email.

How does BitMEX leverage work?

BitMEX allows the traders to place orders bigger than their existing balances. For this, the platform employs multiple contracts. Every contract imposes a particular fee and leverage limit.

In theory

The trader begins by purchasing the number of contracts he wants to leverage. For instance, if a contract on the platform costs about $1, then on 50x leverage, a trader can buy 2000 contracts and on 100x, 4000.

The trader sets a short or long position for a contract. If you anticipate the price going up, you have to buy i.e. long and if you anticipate it going down, you sell i.e. short. Once the position is opened and the order is filled, the trader will be able to view their position under the section titled Open Positions. The trader here can set a Target Price and close his/her position on a certain price by setting a limit to the buy/sell order.

Step-by-step guide

After you have registered yourself as a user, you need to log in to your account and deposit some amount.

A deposit can be made in the Accounts section under Deposit. The deposit would be done after it has been confirmed by one blockchain.
To make your leverage order, find the Trade section in the panel on the left hand side. Enter the quantity, limit price (i.e. the price at which you wish to buy), and click Buy.

Select the leverage rate and confirm the order.

You can now view your order under Open Positions along with your unrealised profits and losses and the liquidation price.
To close your position on a leverage trade order, enter the quantity and the limit price and Sell to close your position on the current trade.
Click Confirm.

You can now view your realised profit/loss under Closed Positions.

How is the profit on leverage trade calculated?

Calculating the profit and loss ratio on BitMEX is kind-of complicated. The formula employed by the platform is:

Number of contracts* contract value* (1/Entry Price – 1/Exit Price)

Thoughts on Leverage Trading

Though leverage trading provides a great opportunity for traders to make the best of even the worst market, it comes with its own risks. While you can make high profits, there are always chances of all of your capital getting liquidated. The platform is a heaven for experienced traders but can be a torture for new traders.

An advice is to begin by trading on low leverage such as 2x, 5x, etc. If you are highly protective about your precious crypto, try not to trade above 20x leverage. Also, it comes in handy to start with currencies that are less volatile.

You can also profit a lot by following the top successful traders on social media, buying The Dip and trading when it is in the dip, making semi-permanent long positions, closing positions quickly after profits etc.

Important Note: Leverage trading is risky practice, There is high risk involve of losing as well, so always use stop loss and dont use more than 5x leverage.