The popularity of cryptocurrencies has increased significantly in the last two years. More and more investors are looking to join the crypto world as a result of trading in terms of $45 billion in value on a daily basis.
Liquid, one of the pioneers in cryptocurrency margin trading, gives its users the ability to maximize the profits of Bitcoin trading without owning it, with leverage of up to 25 times. Spot trading remains an option when executing the purchase and sale of a specific currency. However, margin trading allows you to obtain higher returns with the same investment amount.
Operating safe in Liquid
With the cryptocurrency sector still in maturation, security problems arise. The liquid is registered with the Financial Services Authority of Japan, known for its strict regulatory frameworks. Liquid uses two-factor authentication, a cooling period to reset passwords and IP whitelists, so only you (the user) can access Liquid’s trading platform.
In addition to the security measures mentioned above, your funds are stored offline in a cold wallet and potential risks other than trading losses are almost non-existent.
Margin trading allows the lending of funds directly from the exchange, depending on the chosen leverage multiplier. If, for example, a person wants to invest $25,000 but their account balance is only $1,000, they could use 25x leverage on the Liquid platform to open long and short positions.
Long positions are bets that the value of a given asset will increase. For example, if YOU bet USD 10,000 on Bitcoin with 2x leverage on a long position and the price of Bitcoin goes up, the winnings earned will be twice as high. This is due to the leverage multiplier.
If, let’s say we’re going to borrow another $10,000 from the exchange’s loan pool and we consider that the price of BTC will increase from $10,000 to $15,000, the following happens: in a leverage 1: 1 the profit obtained will be USD 5,000, but if you opt for an apalnc 2x, will allow you to generate higher profits, USD 10,000 in this case.
Short positions work in a similar way, but you are betting that the value of a given asset will decrease. For example, if you open a short position in Bitcoin with USD 10,000 with 2x leverage, and the price of Bitcoin falls from USD 10,000 to USD 3,000, you will get USD 14,000, compared to the USD 7,000 that would have generated without leverage.
Trading in Liquid
Liquid lends money from a so-called “loan fund”. This is an exclusive liquidity pool, where users can borrow funds or lend them for a certain interest rate.
However, leverage also carries greater risks because it is not trading only with its funds. A five percent price drop for a long position could result in a 10% loss if the leverage of your position is 2x. If the price of the asset that opened the long position continues to fall, it will cause the position to be settled to avoid further losses.
Margin trading is a trader’s best friend when it comes to harnessing the power of a given asset. As cryptocurrencies continue to mature and be recognized as a global force on the move, leverage in Bitcoin, Ethereum and other cryptocurrencies may be the best move for novice traders and big retail players around the world.
The market is open 24 hours a day, 7 days a week, and traders do not go through intermediaries on most exchanges. For more information, you can visit the Liquid Help section, which provides very comprehensive information on various aspects of crypto trading.