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Since NordFX introduced its leverage ratio of 1:1000, traders have been offered an opportunity to reap huge benefits by trading the six most popular cryptocurrencies; Bitcoin, Litecoin, Ethereum, Dash, Ripple and Bitcoin Cash. Additionally, the broker has made it much easier for traders as accounts can be opened using USD, BTC or ETH.
The phenomenal leverage ratio offers the traders tens or even hundred times the leverage offered by the competition. However, a majority of folks are still concerned about enhancing their profits several folds without going bankrupt in the process. There have been numerous discussions on whether extended leverage is good or bad. NordFX analyst John Gordon recently discussed the secrets of cryptocurrency trading and the different strategies that can be used to reap more benefits from the platform.
Before going into details on the strategies and secrets to use, let’s look at what the term means first. Leverage is the maximum amount that a trader can borrow from a broker, in this case, NordFX for trading purposes. For NordFX 1:1000 leverage ratio, it means that as a trader you can borrow funds that exceed your own invested amount by 1000 times. The loan is offered instantly and requires no collateral requirements.
High profits, high risks strategy
Let’s assume that you have $100 in your NordFX account. If the cost of bitcoin is $10,000, a combination of your investment and a leverage of 1:1000 will allow you to purchase about 10 bitcoins with a combined cost of $100,000. At the time of the purchase, bitcoin’s value is increasing by $300, in this regard; you will make $3,000 on top of your original $100 investment. In this case, in only one hour you have multiplied your capital by about 30 times.
Quite Impressive, right? The question is why do people consider leverage unhealthy then?
Here’s the catch, if bitcoin’s price starts falling, your investment melts at the same rate. The broker, in this case, will not allow you to lose $3,000. The maximum loss will be equivalent to your deposit. In this case, the moment the loss reaches $100, the transaction is automatically terminated. For this to occur, bitcoin will need to fall in price just by $10. Considering the volatility of cryptocurrencies, this can occur in seconds.
John Gordon, the senior analyst at NordFX talking to Babypips says that the clamour for quick riches makes people take this risk.
“People like taking risks and there’s nothing to be done about it, especially when it comes to money. They always want to get rich in an instant. This is where self-control becomes essential,” says Gordon. He explains that while the profits involved are always high so are the risks.
Averaging position strategy
Let’s assume you have $1,000 in your NordFX account where you can easily buy 0.1BTC if its price is $10,000. If you decide to take the leverage of 1:1000 for the same amount of bitcoin, it will cost you $1 rather than $1,000. This means you will still have a reserve of $999 in case of a price fall. This reserve will allow you to keep on buying as price keeps falling. If the price starts to rise, you have a chance to not only recover your losses but also making good profits.
This strategy is known as averaging position and has proved to be more relevant since December 2017, after the prices of cryptocurrencies started to fall drastically after months of continuous growth. However, it does not indicate that this strategy has no risks at all.
Gordon says that traders ought to be informed before committing their money to any trade.
“Trading through a broker is different from trading on a crypto exchange. If you buy a bitcoin on an exchange, you will only be able to earn on its growth; with us, you can also open a transaction to sell and make a profit even if the price falls. This is akin to a bet that you make with a broker to see whether the price of bitcoins rises or falls,” Gordon says.
The analyst says that most of the traders may end up losing their money by focusing too much on one cryptocurrency which may be on a fall trend.
“You can conduct several transactions at once: some to buy bitcoin, and some to sell it. Upon observing whether the price of the cryptocurrency is rising or falling you can quickly close the losing transactions and leave those that are delivering a serious profit open,” Gordon advices traders.
NordFX has different technical analysis tools, indicators and trading robots for use by the traders. The aim is to enhance their clients’ chances of making profits and reducing the trading risks involved. However, how to use them is solely your decision. It is always important to note that leverage is an additional trading bonus and it is the trader’s role to decide whether to use it or not. With the right information, the tool can be extremely beneficial to you.