Bitcoin Leverage Trading in Kenya
It is no secret that Bitcoin is one of the most expensive and famous crypto-assets today, and not everyone can afford to buy it. But there are ways to make money from cryptocurrency that don't involve buying it directly. One of such ways will be discussed below.
Leverage is basically the borrowing of funds to grow returns on investment. A Bitcoin trading platform with leverage can "lend" capital to a trader, letting the trader open much more extensive positions as if he had more money in his account. However, this also means that the trader will suffer losses in the same proportion as his ample capital.
Brokers can afford such operations because their losses are limited to the balance amount in the trader's account. As soon as the loss reaches the amount of money in the trader's account, the broker will close his current positions.
That prevents the trader from losing more money than he has in his account, and he will not owe any money to the broker.
How Bitcoin trading with leverage works?
When a market position is opened, the market moves either toward the trader's position or against it. Each pip of price movement corresponds to a fixed amount of capital that is added or subtracted from your trading account balance. If the market moves toward the trader's position, the trader earns money; if not, the trader suffers a loss.
Bitcoin leverage trading is done in the form of "contracts" for a certain number of so-called standard lots.
A bullish trend characterizes cryptocurrencies. Most participants count on the gradual growth of key assets. For example, suppose a user wants to buy 1 BTC with leverage of 1:5 at the rate of $60,000.
An amount of $12,000 will be enough to provide collateral. But it is possible to use more funds. In case of growth, the trader closes the transaction at any convenient moment.
After that, the amount of deposit and profit remain on the account. The exchange takes a commission for the transaction and the use of credit funds.
If the BTC rate falls to $51,000, the trader will receive a margin call. He can reduce the position, increase the amount of collateral or do nothing. If the exchange rate drops to $49,000, the exchange will liquidate the trade. The user will have about $1,000 left in their account.
When you use leverage to open a position, you borrow capital, but the money does not actually arrive in your account. However, you see how the current result of the open position changes because each pip is worth more, and a price movement in one direction or the other can make a higher profit or loss.
Basic concepts and terms
Before margin trading in Kenya, it is advisable to learn how to invest in assets on the spot market. Once a beginner is familiar with orders and has found a profitable strategy for himself, he can move on to margin trading.
The novice trader will definitely be confronted with new terminology. Let's get acquainted with it:
- Liquidation - forced closing of a position when the price goes in the opposite direction from the forecast. This way, there is not enough margin to cover losses. For example, if you make a trade with a leverage of 1:10, the trading floor will have to forcibly close the position if the price declines by 9-10%.
- Margin Call is a notification that informs about approaching liquidation level. For example, suppose the exchange rate has fallen not by 10% but by 7%. Then, the user can either increase the amount of the margin so that the close-out occurs later or reduce the position size. Most commonly, a margin call is set at 1.3 - 30%.
- Margin Level - shows how much money is available for new trades. If the value reaches 0-10%, the trader can no longer open new positions. The formula calculates the parameter: total value of assets/amount of borrowed funds + interest rate.
- Margin of order - size to maintain an open position.
- Stop Loss - pending order automatically closes the transaction when the set loss level is reached. It is not available on all exchanges. The Stop-loss level is not set below liquidation.
- Take profit is a pending order to close a position when profit is reached. This order is also not available on all exchanges.
What is Bitcoin leverage trading? It is as much a chance to make money as it is a risk to lose money.
Bitcoin leverage trading platforms allow you to pump up liquidity. On the one hand the volume of transactions increases, but at the same time the volatility also increases. In this situation, the trader takes the risk. Because the exchange will save capital due to liquidation of the position and commission for using credit funds. Margin trading has negative consequences:
- The widespread use of margin trading increases the number and amounts of trades in the market. It leads to increased speed of change of result of trading operation and risks at trading with leverage grow considerably.
- Total loss of capital. If you trade on the spot market, the user will lose part of his funds when the market falls. However, it is possible to give away the whole deposit to repay debts to the exchange because of the leverage.
- Increase of volatility. Most traders prefer to go long, so a chain reaction occurs if a drawdown occurs. As a result, positions are closing one after another, causing the rate to drop even more.
Broker and trader benefit from margin trading
The benefits of margin trading for the trader are as follows:
- The ability to trade in currency markets that can only be accessed with substantial initial capital. For example, the cost of even one lot on the international currency market is estimated at hundreds of thousands of dollars. However, this problem is solved thanks to the Bitcoin leverage trading platform that provides leverage of different sizes, and trading is available to traders with minimal deposit.
- The ability to open positions of a larger volume, which are not available when using only your funds.
- The ability to speculate not only on price rises but also on price falls by opening short positions.
- More potential profit due to opening of positions with larger volume.
Why does the broker want to trade on margin? Brokers' interest in margin trading lies in the following.
Profitable interest on this type of loan for traders is much higher than in banks.
- Increase of profit due to increase of trading operations volume. This factor is explained by the fact that margin trading lowers the threshold to enter the market, thus attracting new clients-traders. This leads to increased volumes of executed transactions, and, accordingly, to increase of broker's profit due to commission from transactions and spread.
As you can see, margin trading is beneficial to traders and brokers. However, if brokers practically always remain in profit, traders risk making a loss.
What are the advantages of Trading with leverage?
One of the main benefits of trading with leverage is that it provides you extra funds to open a particular trading position. That means that you can open a much more prominent position in the economic tool of your choice than would be achievable without leverage.
Although you will have access to more funds, you will not pay any interest on their use. However, if you were to take out a loan to buy any other asset, there would be an obligation to pay interest on the funds provided.
However, with leveraged trading your broker offers you the opportunity to access a larger amount of finance to acquire a financial instrument, without having to pay interest on the amount borrowed.
Leverage increases your profit potential. If the market moves in your favour, your profits will increase manifold.
You can start trading with as little as $100 in your trading account. However, with leveraged trading, even this amount will be enough to open larger positions or trade more expensive instruments, as you will not have to deposit the full amount of the trade.
Instead of keeping a considerable amount in your trading account, you can divert the funds to other investments. All this is possible because you are only required to have a small proportion of the total value of your trading position in your trading account.
Start bitcoin leverage trading now
You can use your free demo account and start learning. You can also fund your newly opened live account.
The platform is intuitive to follow. You can quickly find out which instruments are available and make your first trades in your demo account. We recommend using this feature to get used to Bitcoin trading with leverage.
You can make trades for any amount. Beginners start with a small amount, for example, $100. With such a capital, one cannot count on super-profits. If a deal makes 10%, the trader will receive only $10 of profit. If there is no opportunity to increase the initial capital, margin trading in cryptocurrency will help to earn more.
What is Bitcoin leverage trading? Leverage is the borrowing of capital to increase profits. Once you learn what margin trading means and its characteristics, you should not forget about the risks of making a loss or completely losing your trading account. You should be especially cautious if you are a beginner with no experience in trading. Start trading with small bets, set stop losses, do not forget to take profit, follow the news and have faith in yourself and your power! With enthusiasm, you can achieve anything. Enthusiasm is the sparkle in your eyes, the swiftness of your gait, the strength of your handshake, the irresistible surge of power and will to put your ideas into action. Enthusiasm is the cornerstone of all progress! Only with it can you succeed. Without it, you have only opportunities.
Good luck in trading!