Investing Like an Expert in Cryptocurrencies
As traders and investors progress in cryptocurrencies, there are more advanced techniques that they can apply to attempt to enhance their returns. However, these techniques also represent more risk and are only applied by those with sufficient experience. We cover these techniques in this chapter.
The techniques include shorting, leverage trading, derivatives, arbitrage, lending, masternodes, and ICO investing. Imagine you coque iphone 5s marc jacobs have 10 and the price of one coin of Crypti is 10. You buy one Crypti coin and anxiously follow its movements day action coque iphone after coque iphone 5c femme day. After a volatile year, the price ends up at 15. You are happy because you have got a 50% ROI (Return on investment) gain on your investment.
You then chat to your friend Patrick, who has also started the year at 10 and was also eyeing up Crypti coin as an investment. Patrick went to his friend, Johnny, and asks to borrow 90 to make an investment. Johnny says he can borrow it but he needs it back at the end of the year and he also has to keep some of his own money in the investment. Patrick agrees to the terms and uses his own money along with the borrowed funds to purchase ten Crypti coins. After Crypti coins finish the year at 15, Patrick has 150 in total value. He pays coque iphone 5 ferrari his friend Patrick back his 90 and is left with 60. Patrick has successfully earned a 600% return on his initial equity.
But leveraged trading comes with significant risks. One of Johnny's terms was that coque iphone 6s en cuir the trade can remain open as long as Patrick has some of his own equity in the investment. If Patrick's initial investment dropped just 10% (100 to 90), it would erase all of the equity that Patrick holds in the position and he would be forced to sell to pay Johnny his money back.
How does this work coque iphone 4s garçon in the cryptocurrency markets Derivatives instruments which we will cover next enable traders to apply leverage and if their equity approaches zero, they are liquidated. They will also typically pay coque iphone 6s silicone miniinthebox a rolling fee to keep the position open which is how the exchange earns its money. Other exchanges will also allow users to borrow money. The margin is the amount of capital the trader requires to open a leveraged trade. Typically, there will be an initial margin and a maintenance margin. The initial margin is what is required to open the position. If the initial margin is 40% and the total position value is going to be 100, that means that the investor will need to put 40 of their own capital.
The maintenance margin is the minimum amount of capital the investor needs at all times. If the initial margin is 40% and the maintenance margin is 25%, the investor can open the position if they have at least 40% of the equity in the position and the position can remain open as long as 25% of the capital in the investment is theirs.
If the 100 position was opened with 40 initial equity and 60 borrowed equity, the position can remain open as long as it doesn decrease to the point where the investor only holds 25 in equity. If it decreases to this point, the position will automatically be closed and any fees that the coque iphone 5 etanche antichoc exchange or broker charges will be deducted.
Leveraged trading can be extremely effective when used correctly but it can also be disastrous when used carelessly. An enormous number of traders and investors careers have come to an early end iphone 6 coque girl because of the careless application of leverage.
One tool you can apply apple coque iphone 8 plus to make sure you protect the capital in your portfolio is that you do not risk any more than 1% of your portfolio on any one trader, or any more than coque iphone 5c a rabat 3% on any collection of trades. These are the recommendations of legendary investor Paul Tudor Jones and will be covered again in the next chapter on coque iphone se meme risk management.
DerivativesDerivatives are instruments whose price is derived from an underlying instrument. In the case of cryptocurrencies, there are derivatives to represent a number of different cryptocurrencies. Derivatives are commonly used to apply leveraged trading and also to open short positions. We will cover short positions next.
There are a number of derivatives exchanges operating in the cryptocurrency space. Bitmex is the most widely used and popular. Bitmex enables traders to apply coque antichoc iphone 6 silicone up to 100x leverage on positions and also to take short positions.
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On a larger scale, the CME provides Bitcoin futures instruments which are derived from the price of Bitcoin. These futures contracts expire every three months and enable professional traders to speculate on the price of Bitcoin.
ShortingThe market is not always going to go up. coque iphone 6 silicone pop corn 2018 has been the perfect example of this. Traders who could only take long positions during 2018 were really swimming against the tide. Traders who can capitalise in all market conditions must be able to take short positions when the opportunity presents itself. Shorting, or short selling essentially means speculating on the downward movement of the market.
How does short selling actually work In the stock market, an investor borrows the stock from another investor through their broker and sells immediately. At a later stage, they buy the stock back to return it. coque iphone nixon If the price has gone down, the profit is the difference between the selling price and the price which the stock coque iphone 5 transparente motif was bought back at. If the stock rises, the investor suffers a loss. Shorting is a more risky investment strategy as losses can be unlimited. There is only so far that a stock coque iphone 5 garcon can fall but the upside is theoretically unlimited.
How does it work in the cryptocurrency markets A number of exchanges will allow users to borrow margin to take short positions. There is typically a rolling fee on these positions. One exchange which facilitates this is Poloniex.
There are cryptocurrency derivatives that also enable traders to take short positions, the most popular of is the Bitmex XBTUSD perpetual swap which facilitates traders to speculate on Bitcoin as priced against USD. Many contracts for difference (CFD) brokers have cryptocurrency instruments that enable traders to derivatives that track the price of cryptocurrencies. However, the fees are typically so high with coque iphone 6 jeux avec la pomme CFD brokers that it will be nearly impossible to profit over the long term.
ArbitrageArbitrage is another advanced technique which is a bit different. It is capitalising on the mispricing of the same security in two different markets. Imagine you could buy oranges in the store down the road for 1 and you have a merchant willing to buy them from you a few blocks away at 1.10. You buy 100 oranges and bring them to the merchant to sell at a 10 cent premium. You can happily do this as long as there are oranges and a mispriced market.
This is a straightforward example of arbitrage. This also takes place in the financial markets with identical instruments sometimes being mispriced in two different markets. However, in the traditional markets, these price discrepancies do not last long as traders will buy the instrument which is lower priced and short the higher priced instrument to profit from the convergence. With the cryptocurrencies market still in the developing stages, spreads do exist between different exchanges and instruments. But why is everyone not capitalizing on these Are there any risks with arbitrage
Let go back to our oranges example. Imagine you bought as many oranges as you possibly could for 1 and you bring them down the road to sell for 1.10. Upon arriving at the second shop, you find out that the price is after dropping to 0.90. Instead of profiting 10 cents for each orange you have bought, you have actually lost 10 cents for each orange you have bought.
This represents a real risk and is especially applicable to the cryptocurrency market given the longer block times. If you buy Bitcoin with your euros on one exchange and look to transfer it to another exchange that is trading at a 3% premium to sell for euros, the price could easily be lower after coque iphone claire's swinging by the time the Bitcoin arrives.
There is also the question of scalability. In the orange example, the seller of oranges will only have so many oranges to give you and you can only transport a given amount anyway. If you can manage to build up a successful arbitrage operation which would be a great feat to achieve, you will eventually reach a point where the sheer size of your orders cannot be handled and you will be unable to offload at profitable prices.
There are numerous other complications which come into coque iphone 6 cerf arbitrage as well. Transferring to and between exchanges has its own risk, especially in a new industry. The exchanges with the best spreads often have them for a reason as well. The exchange which has the highest premium may have subpar operations and you may never be able to get your funds at all. It would be the coque iphone 6 bleu turquoise same as bringing your oranges down to sell for 1.10 and somebody robs the whole bag on the way!
Additionally, you need to make sure that you cover all fees and leave with a decent profit.
LendingWhen you take a short position with borrowed equity as described earlier, coque afrique iphone 6 where do you think the money coque iphone 6 fee clochette silicone comes from It comes from other users on the exchange. Most exchanges do not let users manually loan out money as they do this in their own internal system but some exchanges will let users loan out to earn an coque iphone 6 plus personnalisé photo interest return…