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 lets you open a positions that are up to 5 times more than your collateral value. If you allocate 1,000 EUR as collateral, you can open a position worth 5,000 EUR.
Your gains and losses will move 5 times faster, and due to volatility of crypto, the positions could move quickly in a short timeframe. This puts more stress on the trader to remain aware of their positions, open orders, and free margin 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 positions, to ensure security and risk is minimized.
If your active positions are in a net loss which results in your available margin dropping to -70% of your collateral value (this corresponds to a free margin of -100%), this will automatically close all your positions. This is called a stop-out or liquidation, this 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 a stop-loss or take-profit.
A stop loss or take profit will automatically be triggered and close the position when the asset gets to the specified price - some slippage may occur on market/stop 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 lose.
Have a target price for taking any profit or loss of 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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