You are trading on margin, which means that part of your position is given for you to trade, from us, so long as you have a collateral. Here, we shall list some potential risks involved with Margin trading, as well as some steps to mitigate them.
Trading on Margin
As stated before, margin let's you open a position that is more than your collateral. Up to 3 times worth. So if you allocate 1000 EUR, you can open a position worth 3000 EUR.
This means that your gains and losses move 5 times faster, and due to volatility of crypto related trades the positions could shift in a second. This puts more stress on the trader to keep aware of his positions and the settings they have.
If big sums are involved, you have to be ready to dedicate your time to properly analyze what your plan is and how to manage the positions, to ensure security and risk minimization.
If your active positions are in a net loss situation that results in your available margin dropping to 50% of your used margin (this corresponds to a free margin of -100%), this will automatically close all your positions. This is called a stop-out and is why proper care and thought should be put into every margin position on the platform.
Tips to mitigate risk
The easiest way is to use stop-loss and take-profit options.
A stop loss or take profit, will automatically close the position when the asset gets to the specified price (some slippage may occur on stop-loss orders in fast moving or illiquid markets.).
If you are not monitoring your positions 24/7, then using stops is advisable (even with the risk of slippage), especially if you're trading with leverage.
Having a plan, this is just forward thinking measures on what positions to invest in and when:
- Never trade what you are not willing to loose.
- Have an idea at which point you are comfortable to close a position.
- Be aware of your losses and plan accordingly.
These are just a few small tips that can potentially save your positions and your trades in general.
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