Using a crypto margin trading strategy is fundamental when it comes to trading volatile cryptocurrencies with increased buying power. Without proper planning, trade management, and risk management you are going to find it very difficult to succeed in today’s volatility.
If you are stuck with poor performance due to getting stopped out too early, not making enough money on your winners, and simply lacking the motivation to keep trading because you can’t see the money, then this guide is just for you.
In my personal trading, I use these strategies on a daily basis and I can assure you that I would not make it one single day without them. So, sit tight, keep reading, and pull out your notebook if you are a complete beginner.
Each strategy for crypto margin trading has something special to offer, however, should you wish to skip some of the strategies that you are already familiar I’ve made a content table where you can pick where to start.
If your problem is risk management, I recommend that you read strategies number 2, 3, and 6. If you are not making enough money on your winners focus more attention on strategies number 1, 4, 5, and 10 to increase your probabilities of hitting large profits.
You will learn
- When to increase buying power
- When to add your stop-loss
- Isolated margin
- How to select your coin
- How to margin trade with volume
- What is the 1% rule
- Close out all positions before the day ends
- What platform to pick
- Fear and greed index
- Use 3 different time frames
Try to implement each crypto margin trading strategy one by one. If you try to add all of them at the same time to your trading plan you will suffer from traders block and you will have a very hard time entering the market with conviction.
1. Increase buying power on positive trades
Have you ever wondered how professional traders score big gains and how they seem to effortlessly stay alive in the game of trading?
Is it just because they are funded with a large account or do they have some secret sauce that they are not telling us about?
No, none of the above-mentioned ideas are true, however, a large account is always beneficial to a trader.
If the chart looks something like this you definitely want to add to the trade:
Now, the one thing that successful traders have in common is that they know how to press their good trades.
What do I mean by pressing their good trades?
It means that when you find yourself in a situation where you have found a very good trade opportunity with a very skewed risk-reward ratio in your favor, you maximize the position size to the absolute limit.
The good thing about crypto margin trading is that you can increase your position with up to 125x leverage.
Your trade might not succeed, which is absolutely fine, you will take a small loss, and move on.
However, when your highly skewed trade with a much larger position size goes in your favor, you stand to make the bulk of the money that you are going to make that week or month.
Big professional traders they don’t aim to hit winners all the time to have good cash flow. That’s not how trading works.
Instead, they search for big opportunities where they can scale up and make large profits.
These opportunities might not come very often, but when they do, you need to be ready to increase your margin on your crypto exchange.
When you get to know your setups better and especially the coin you are trading, you will learn when it’s time to load up.
So, the key to making good money in crypto margin trading is not by trying to win all the time, it’s all about finding the most positive trade, and entering with the biggest size possible.
But keep in mind that you still want to be within your risk limits. Never risk more than your risk management strategy says.
If you do this and keep trading you will soon be within the 80/20 range.
The 80/20 range says that 80% of your profits will come from 20% of your trades.
2. Add your stop-loss before you enter
Are you adding your stop-loss order to your position before or after you enter?
If you do it before, well done.
However, if you enter first and secure your trade when it’s already in the market you are making a big mistake.
Margin trading in cryptocurrency can be deadly if you don’t know how to properly manage risk and volatility.
Prices fluctuate between 5-35% intraday and if you are not careful you might risk losing all your capital.
An unprotected position with leverage can easily liquidate you in a matter of minutes if the market outlook is sour.
Take a look at this market screenshot of BTCUSD:
What happens usually is that beginner traders open their position and then judge whether the market is going to swing in their favor or against them.
When the market goes in their direction, everyone is happy, and the trader can close out a nice profit.
However, when the trader enters a highly volatile coin without protection and the market starts falling by more than 1-5% you can get liquidated in a very short time if you use a leverage ratio of over 1:20.
If your leverage level is 20x or more you have a 5% distance to your liquidation price.
Your liquidation price is where your margin capital can’t support the loss of the position and your account loses all its value.
So, you can imagine how dangerous it can be to trade with even lower margin levels and jump into the markets without a protective stop.
I can’t tell whether your trade will go up or down but if you keep trading without a protective stop-loss straight from the opening I can assure you that there is only a matter of time before you lose all your money.
Be a smart trader and add the stop-loss before you hit the buy or sell button.
Also, before starting out with margin trading cryptocurrencies, take your time to learn how to calculate your margin, and how to calculate your liquidation price.
3. Use isolated margin
Do you know the difference between isolated margin and crossed margin on a crypto exchange?
A position with isolated margin means that the amount of margin capital that is needed to open the position is the only risk capital that can be lost.
On the contrary, crossed margin means that one position alone has access to all the capital in your account.
In theory, when using crossed margin, you could liquidate your whole account by simply having one bad trade.
Here is a quick summary for you to understand:
- Isolated = Risk only what is required to open the position
- Crossed = Risk all your account balance
You can see why it would be wise to avoid crossed and stick to the isolated margin version.
This is a pure risk mitigation strategy that will save you in the worst-case scenario.
Imagine that you open a position worth $200 in margin capital and you use a leverage ratio of 1:20.
This would mean that your total position size is $4000.
If you use isolated margin, the only capital that could ever be lost on this position is the $200 you used to open the trade.
However, if you used crossed margin you basically tell the trading platform “If my position goes bad, please use all the money in my account as back up”
Now, imagine that you forget to add your protective stop, your internet stops working, and you’ve just entered a big position in margin contract for Ethereum.
This one position alone could wipe out your whole balance and liquidate your account.
This is a very effective margin trading strategy for crypto that will effectively protect your downside and limit your risk.
If you choose to focus your attention on only one of these risk mitigation strategies it should definitely be this one.
4. Select a volatile coin
What are the benefits of choosing a crypto coin with high volatility, how do you find one, and how do you use this volatility to your advantage?
These are standard questions that most beginners ask themselves and I understand the confusion.
To boil it down for you, volatility means movement, and movement means opportunity.
When you trade a coin that moves up and down with higher volatility than other coins you will find more opportunities on both the upside and the downside.
A cryptocurrency might experience higher volatility for several different reasons such as:
- New exchange listings
- Low float (liquidity)
- High popularity
- Positive or negative news
- Standard behavior
It doesn’t matter which one of these factors is causing the coin to move, the important thing is how your take advantage of it.
When you combine crypto margin trading and high volatility you can see some incredible results as long as you know how to watch out for the risks.
If we only focus on the aggressive strategy of crypto margin trading, high volatility will directly give you two things:
- Good entries
- Large swings
How does this help you as a trader?
If you can enter your position at a time when the coin is pretty much one-sided with very few pullbacks, you can afford to increase your leverage and therefore maximize your return.
The volatility also gives you more potential for larger swings and when you combine that with a good possibility for a tight entry, you have the perfect risk-reward ratio.
So, this recipe will not guarantee that you become rich from trading crypto on margin, but it will give you a high-quality trading setup that you can’t find anywhere else.
See our guide: How to find new crypto coins to learn more on how you can pick up a brand new coin that just got listed on a crypto margin exchange.
This strategy is probably one of the most important when searching for the best crypto trade with margin.
Also read How does cryptocurrency gain value to learn more about why and how the price and valuation move up and down.
5. Trade with volume indicator
The power of volume is immense and I will explain to your why.
Volume is equal to contracts traded in any given market and these contracts are “votes” by traders who either believe the market is going up or down.
If they are fearful, they sell, and we can see that volume.
If they are greedy, they buy, and we can see that volume too.
Good, so how does this help us when we margin trade cryptocurrencies?
The basic concept is that you always want to trade in the same direction of the volume, or at least in the same direction of the majority of the volume.
So, if most traders are buying on any given day, you should be a buyer.
The way we see if there are more buyers than sellers in the marketplace is through trends.
If the price is trending upwards, most people are buying, and if the price is trending downwards, most people are selling.
There are four situations for any trade, they can either be:
- Positive with high volume
- Positive with low volume
- Negative with low volume
- Negative with high volume
Which one of these scenarios do you want to trade?
If you said 1 and 4 you are spot on right, and here is why.
When you trade a market move that has volume attached to it there is a higher probability that the market will continue in that direction.
This is a fundamental factor that holds true for every market and it is something that you should adopt to all your setups going forward.
If the market is trading in a positive or negative trend with low volume there is no reason for you to enter that coin and hope for a good exit, that is gambling.
This crypto margin strategy will not secure that 100% of your trades are successful but it will increase the likelihood that your market prediction is right and then you can enter with conviction.
So, your next step is to activate the volume indicator on your margin exchange and start following the same setups with the indicator in the background.
6. Use the 1% rule
The 1% rule is one of the best risk mitigating strategies for crypto margin traders.
If you want to know how rich traders stay alive trade after trade, stop-loss after stop-loss, then read this carefully.
The 1% rule states that you should never risk more than 1% of your total risk capital in any single trade.
Read that carefully because it says 1% of your RISK capital, not your capital.
You need to separate the capital that you have to pay your bills and your food from the capital that you are going to invest in your trading account.
Now, if you only risk 1% of your capital per any given trade you can endure 99 losses in a row without going broke, the 100th loss will take you down though.
The beauty of trading cryptocurrencies on margin is that you can multiply your position size up to 100 times or more thanks to leverage.
This means that you can take 1% of your capital and use it with 1:100 leverage and trade your full account size in each trade and still keep proper risk management.
That’s potential and safety at the same time, something that traders look for every day.
Imagine that you deposit $2000 in your margin account and you decide to use the 1% rule.
1% of $2000 is $20.
We know that you can only afford to lose $20 on any single trade.
However, you can enter a position size much larger than that with the help of leverage and stop-loss.
For example, you could use $200 of your margin capital, add 50x leverage, and trade your coin with $10.000.
If you enter a one-sided market and add your stop-loss correctly you can stay within the 1% range.
The good part is that if you open a position worth $10.000 and the market climbs 5% you have locked in a profit of $500.
If you calculate the risk of $20 and the profit of $500 it turns out that you just enter a trade with a 1:25 risk-reward ratio.
Now that is the power of margin traded products and it should be your number one priority when day trading the markets.
7. Never hold positions overnight
The number one strategy for crypto margin trading is to never hold positions overnight.
This might surprise many traders but it is absolutely crucial that you plan your trading well so that you don’t get left with one or several open positions after midnight.
The simple reason for this is management fees.
Management fees are charged by the margin exchange just the same way that the bank charges you interest on your mortgage.
Management fees are interest payments on the leverage you borrow to open a position and if you hold the position overnight it will roll over to the next trading day and the fee is collected from your account.
A standard fee is around 0.03% up to 0.06% depending on the operator.
Bityard has an overnight fee of 0.03% which is at the lower end compared to other operators, see the screenshot below:
This is a percentage of the total position size and if you are trading with several large positions open at the same time you might get slapped with a hefty fee.
Let’s say that you have an account balance of $2000 and you use $500 as margin capital in a position with 1:75 leverage.
That is not very high and not very low, it would be an average position among traders.
Let’s calculate the management fee for that position while pretending that the total management commission is 0.05%.
First, we need to calculate the total position size which would be $500 x 75 = $37.500.
Now, we calculate the total fee of that position size which is $37.500 x 0.0005% = $18.75.
$18.75 is the fee you need to pay every time your keep your position open passed midnight and into the new trading day.
That is a lot of capital going to waste and imagine if you would have five similar positions open at the same time or if your position size was 10 times larger.
Add this to your crypto margin trading strategy list and try to avoid paying unnecessary fees.
Our guide on how to take profits in crypto will give you some insight on how and when to close out positions.
8. Choose a trusted crypto margin trading platform
The importance of a good exchange platform that offers margin trading is key for any trader.
What are the most important things to look for when searching for a good platform?
Below is a list of what I always recommend that you check before signing up:
- Security – Every platform will have a security page where they list all security features such as 2FA verification, whitelisting, email confirmation, phone number verification, fund password, anti-phishing code, and other important safety information that will keep your account safe. Make sure that it has at least 2FA verification and a whitelisting option, this will protect your account as long as you don’t lose your smartphone.
- Trading fees – Trading commissions are going to be the biggest expense as a trader, even bigger than your daily losses if you are an active trader. Keep in mind, that even on trade that breaks even, you still have to pay the fee to enter and the fee to exit. When using margin your position sizes increase and the fees will proportionally grow with the size of your position. The lower the commissions the better it is and sometimes it is even worth sacrificing some of your basic needs to get a cheaper fee structure. Crypto exchanges with the lowest fees are generally the most popular ones since they can afford to keep low commissions.
- Management fees – If you are a swing trader who is looking to boost your profit with margin traded products you absolutely have to check the management fee before you join. Make sure that the overnight fee is not more than 0.03%-0.05%. This commission will affect all your open position on any given day and they are charged every day.
- Leverage levels – A good platform should allow for low levels and high levels of leverage. This is to suit more risk-averse traders but also to help traders who want to push their good trades to the max. Ratios of 100x leverage don’t necessarily mean higher risk as long as you implement proper risk planning. Instead, using a high ratio will ensure that you can multiply your profits on your good setups whenever the opportunity arises.
- Regulation – At Trading Browser we always speak well of regulated crypto platforms due to the safety they offer to their customers. Regulation means security for many reasons but most importantly most jurisdictions offer backup funds to your capital in case something would go wrong. Most centralized exchanges are vulnerable to hacks and this is something to keep in mind. Always check with your local regulations before you pick an exchange.
- Crossed/isolated margin – If your exchange doesn’t support the option to choose between crossed or isolated margin you should think twice about joining. If you are an active day trader with several positions open you will not be able to manage risk with crossed margin. This type of trader will need to use isolated margin to separate the overall risk.
- Order types – Some of the most important order types for any trader are market order, limit order, stop-loss, and take-profit. These are also the most basic order types but also the most frequently used. Make sure that all these orders are available. Any extra order types will be considered a bonus such as a trailing stop-loss. Choosing a crypto exchange with stop loss is the most important factor for your risk management.
- Matching engine – Here is a mysterious term that probably most of you have never heard about. A matching engine is a system that matches trades on a platform. It reads all the buy and sell orders going through the order book and matches buyers with sellers in a queue-like fashion. If your platform has a slow matching engine you are going to experience a lot of delays and lag. Make sure that you read the reviews and the description on the exchange.
- Charting interface – Most cryptocurrency traders are basing their approach on technical analysis. In order to make a good technical analysis, you need to have a charting interface that lets you use your creativity through different indicators, drawing tools, and logarithmic scaling. When your charts are on point your trading will also be on point. Every top day trading crypto platform will always incorporate good charting.
- Overall features – Other features such as signals, market news, performance analytics, cold storage wallet, a mobile app, and a customizable interface are helpful additions to your platform that will make your life easier. Look for all of these different features in our crypto exchange reviews. Crypto copy trading is a also popular feature that many derivatives platforms offer nowadays.
- Products – When it comes to choosing a margin-traded product you have several different options. There are swaps, options, perpetual, futures, turbos, warrants, lite futures, leveraged tokens, and several other derivatives products that are all based on leverage. Make sure that you know the difference between them to optimize for your style.
- Demo account – A demo account is the most helpful way of testing a platform before depositing money. Crypto exchanges like Bityard offer great paper trading opportunities through their demo accounts where you will be able to test all platform functionalities without risking your own money.
Each crypto exchange that allows shorting will have margin-based products which is a huge plus for a day trader.
9. Check fear and greed index
The fear and greed index is a very useful tool for margin traders thanks to its predictive nature.
First of all, what’s the fear and greed index?
This index is an accumulation of data taken from different parts of the internet.
The index collects information from:
- Market volatility
- Market volume/momentum
- Social media mentions
- Market dominance
- Google trends
- Surveys (currently paused)
All of these data points are measured and plotted on a chart to give you a representation of how fearful or how greedy the market participants are at the moment.
See the 1-year chart in the screenshot below:
You can use the index to see the overall sentiment in the crypto market and use it to your advantage by either going with or against the crowd.
When the market is crashing and the index reads extreme fear, you can wait for the move to playing out on the downside, and then go long on the bounce back up.
Also, if the market is starting to move in a positive trend and the index confirms that the overall sentiment seems to be positive, you can enter during the next positive breakout knowing that more people might jump on the trade after you.
It might take some time to learn how to use the index but it is an extremely useful tool.
It works well for both short-term trades as well as medium-term swing trades where there is a clear trend in either direction.
Remember to use the index as one of many indicators when making your market predictions.
You don’t want to rely solely on the chart to tell you which direction you are going to trade in.
Let it be a tool and not a prophecy or an easy solution instead of having a well-thought-out trading plan.
10. Confirm trades on 3 different time frames
In order to increase your chances of winning you want to tip the probabilities in your favor and then execute your trade.
One way of effectively lining up a trade is to analyze 3 different time frames to confirm your hypothesis.
But why look at three charts when you are only going to enter in one of them?
That’s a good question, and the reason for analyzing several time frames at the same time is to see if other traders from a larger time frame are seeing what you are seeing.
Does that make sense?
If you see a positive trend or a positive breakout on the 10-minute chart it might be just a small pullback in an overall larger negative trend.
If you check the 1-hour and the 4-hour charts and see that the trends are not lining up with yours, it might be a good thing to reconsider your trade.
This is because a trade that has three time frames or more lined up with it will have a higher probability of succeeding.
The more time frames that line up with a possible breakout the more traders will be ready to pull the trigger and jump on that trade.
This means more volume and more momentum which are the two ingredients for a successful operation.
If you are a scalper I recommend that you check the 1-minute, 15-minute, and 1-hour charts to confirm your trade.
If you are a day trader I recommend you to check the 10-minute chart, 45-minute chart, and 2-hour chart to see that your trade lines up well.
This works well for long-term investors as well but it is more of a crypto margin trading strategy for short-term traders.
Keep in mind that this should not be a make-it-or-break-it call for your upcoming trades.
Use it as a way of gauging the market and even if you see your favorite setup lining up in your current time frame but not in the others, don’t skip on the trade if you know it has potential.
Trading crypto on margin means that you are using leverage to increase your position size while only investing a fraction of your own money. Margin traded accounts can be found on crypto derivatives exchanges. Using borrowed money for cryptocurrency is a common practice that day traders use to amplify profits. It increases both the potential profit and the risks associated with speculating on cryptocurrencies.
Any strategy is built up of a set of rules that the trader follows and it is no difference while trading on margin. Each strategy should be internalized by the trader which means that it has to be practiced over and over again. A strategy can both be to protect your downside and limit your risk while at the same time maximizing your potential winnings.
The margin level you choose depends on your overall trading approach and the coin you are trading. On some occasions and market environment, you will be forced to lower your margin and in other situations, such as a strong breakout, you are free to increase your ratio.
If you are a passionate trader that lacks the proper funding to make significant returns margin trading can be a very good tool to amplify profits. The most important thing to understand is that the risk is symmetric to the amount of capital borrowed.
A crypto margin trading strategy is an absolutely essential building block to succeed while trading the cryptocurrency market with borrowed capital on a derivatives broker. The best way to learn is to adopt strategies that have been proven to work for others.
In this guide, I list the top 10 strategies used by me personally while I margin trade Bitcoin and other coins. By implementing these strategies your overall return should increase and your total risk will fall to manageable levels.
If you are missing the last pieces to become a full-time profitable trader, this guide will be very helpful as you will learn both how to actively manage risk and how to increase profits on your positive trades.