A Beginners Guide to Margin Trading on Bitfinex Why you Shouldnt be Trading on Exchanges ~ ultimate forex hedge trading system
So Ive been talking a lot about Bitfinex recently, since I started using it about 2 weeks ago. Up until now, Ive been using a variety of exchanges including Bitstamp and BTC-E to trade my Bitcoin. I just want to point out that there is a big distinction between exchanges, and trading platforms like Bitfinex. On exchanges, all I could do was sell Bitcoin at a high, and buy them back at a low, or hold some USD in the hopes of snatching up some cheap Bitcoin. In fact, Im sure all of you reading this have been trying to do exactly that for the last few months. If you havent heard of Margin trading, get ready to be blown away; youll be kicking yourself for not doing so earlier.
When I first started trading on Bitfinex, I was totally tripping out about how I didnt find out about this platform and trade on it earlier. Trust me, when you start using Bitfinex to Margin Trade, youll be wondering wtf youve been doing on those exchanges for the last few months. Because thats exactly how I felt, and thats also why Im so excited to share it with you. Since then, quite a few people have been asking me on Twitter to cover some Margin Trading and Bitfinex trading material. So here goes nothing.
DISCLAIMER: As much as I like Bitfinex and recommend them for Trading, I do not endorse the site in any way. I do not know if theyll close down today, tomorrow, or a year from now. I also do not know how they handle their funds internally and whether that will pose a problem in the near future. Please trade with caution, and only use money you can afford to lose. If you hear anything negative (e.g. withdrawl issues etc.) about Bitfinex on Reddit/Bitcointalk/Twitter, please make sure to let me know too!
You must be wondering, first of all, what exactly is Margin Trading? In a nutshell, margin trading is basically borrowing money from the broker (trading site) for trading. Bitfinex currently offers a leverage of 1:1 up to 2.5:1, meaning that you can borrow 1 up to 2.5 Bitcoin for every 1 Bitcoin deposited. For beginner traders, I suggest changing your leverage right after you set up you account to 1:1. Keep in mind that by borrowing funds, youll be subjected to interest charges (10-13%) which is automatically factored in when you close your position. If youre inexperienced, please listen to my advice, or you could get burnt badly (although 2.5 leverage is pretty decent). For example, if you use 2.5:1 leverage, and short sell your whole account from $800, but price goes up by $800/2.5=$320 to $1120, youre going to lose ALL your Bitcoin in your account (even lower than that actually, because of a platforms stop-out level and margin call). Of course, this can be easily managed with a good trade size & risk management strategy, which I will cover later.
There are 3 options to choose from on Bitfinex; Exchange, Margin Trade, and Liquidity Swaps. If you head to their how it works page, youll be able to find a good explaination of each of the 3 different functions available. More importantly, I will only focus on Margin Trading, because thats all youll need to get started on Bitcoin/Litecoin trading.
Let me just orientate you the site before we go on further. Once you create your Bitfinex account, youll arrive at this page as you see below. So first of all, click on Margin Trade, and select the currency pair that you would like to trade. Secondly, you can see your active positions held, for example I have a sell order (indicated by the - sign) at a price of $845, and Im making ~5% on my trade at the time of posting. You can also see a close action available, which allows you to close your position at the current market price. Thirdly, you can see some of my active orders; red is sell, and green is buy. I have already set 5 different buy positions on $BTCUSD at $701, $688, $622, $555, $471, and 3 sells at $850, $899, and $988. You can see already, that theres much more room to play around with trading on Bitfinex as compared to a traditional exchange. And lastly, the 4th section is where you place your orders. Theres 5 different kinds of order types, namely Limit, Market, Stop, Trailing Stop, and Fill or Kill. Do read the links provided for an explaination of each different order type.
So what well focus on here is how to actually place orders, and how to manage your orders on Bitfinex. For more about technical analysis and an introduction to trading strategies, visit my previous blog post here. If youre thinking of starting out on trading, I highly advice reading the linked article, as well as this set of very good resources by Reddit user ClydeMachine.
Lets say we deposit 10 Bitcoins into Bitfinex for trading, and we think that the general trend is going down, and want to place a short sell to capitalize on the fall. Youll place a Limit Order, enter your price say $850, for a total of 1 Bitcoin, and click the Margin Sell button. Lets also say from Technical Analysis you figure out that the next support levels are at $760, and $700. So at the same time, you can also place a Limit Buy order for something like 0.5 BTC at $760, and 0.5 BTC at $700. On top of that, if you think that theres a strong resistance at $900 and feel that it may break up to $900 but not beyond that, you can also place a Stop Buy Order at $910, or a Trailing Stop Order for $60 (provided its currently $850, it will add on the market price -- they both work the same way, only different in the way the position is entered). And if youre going long (buying because you think the market is bullish), itll be the exact opposite of a short sell as mentioned above.
When your $850 sell order is reached, it will then appear on your Active Orders (section 2) list. From there, if the price moves in your favour, and reaches $700, youll make 0.5*($850-$760) + 0.5*($850-$700) for a total profit of $120. Point to note is that your Limit orders will cancel each other out. On the other hand if market moves against your favour, and completes your Stop or Trailing stop orders at $910, youll lose $60 on your trade.
With regard to choosing a suitable leverage for yourself, this is really up to your own personal risk preference, as well as how much you have to trade with. If you have more BTC to play around with, you can choose to deposit more and use a low leverage, unless of course youre in the mood to gamble. But again, please trade safe. This more or less covers Bitcoin trading on Bitfinex. Sign up with me and get 10% off your trading fees for 30 days here. If you have more questions, feel free to tweet me @onemanatatime.
With that, I just want to also cover some of the basics of Bitcoin Trading and share what I think are the most important tips for you traders out there. If youre thinking, why should you listen to me; I have to be honest and say that Ive only been trading Bitcoin since September 2013, although I have some experience from Forex Automated Trading since November 2012. On the other hand, since making my first few mistakes trading, Ive been putting a lot of effort into researching the topic, and I believe I have a pretty good fundamental understanding of the Bitcoin market. I like to think that I learn pretty fast, but who knows, I could just be getting lucky. Either way, Ive made a few pretty good predictions since early December 2013, and Im just here to help all of you who are interested to learn more.
As mentioned right at the start, one of the most important traits of a good trader is to be disciplined in your trade sizes and plan a risk management strategy that suits your risk-propensity and style. Before you dismiss the importance of this statement, I just want to add that Ive been playing poker for over 5 years, and I know how important money management is in being successful as a poker player; and trading is no different. In Equities/Forex trading, traders typically risk 1-2% of their whole portfolio on any single trade. On the other hand, I understand that this % is wayyyy too small for any of you reading this (all you gamblers...). Ill just point out that I typically risk about 10% of my whole portfolio on each position, and up to 50% for active trades. If Bitcoin goes to $400-500 within the next 4 weeks, Ill be sure to be going all-in on a long position.
Ive also compiled a few of the most commonly asked questions I came across over the last few days:
So there you go, I hope this post can help you get started on Bitcoin Margin Trading. If you havent got your account by now, sign up with my referral code and enjoy 10% off your trading fees for the first 30 days. Click here to get started on Bitfinex.
Lastly, Im building a list of very strong Bitcoin traders on Twitter, and looking to find only the best thought leaders on the topic. Do check it out the Crypto Trading List and feel free to give any feedback or suggestions for who else should be in there. Also feel free to visit my TradingView profile where I chart out my Bitcoin (and some Litecoin soon) predictions. If you havent watched this video by @ChrisDunnTV, highly recommend checking it out!
Im thinking of a few topics for my next blog post. Would you like to see something about Bitcoin Daytrading & Technical Analysis, a revisit & review of Altcoins, Poker & Daytrading, or something about Dogecoin? Drop a comment, send me a message with the form right at the bottom, or tweet me at @onemanatatime.
Why does everyone like selling BTC into FIAT, instead of Margin Trading Short/Long??? Trust me, youre MISSING OUT. https://t.co/i5PliWJiz6
— Alvin Lee (@onemanatatime) January 18, 2014 When I first started trading on Bitfinex, I was totally tripping out about how I didnt find out about this platform and trade on it earlier. Trust me, when you start using Bitfinex to Margin Trade, youll be wondering wtf youve been doing on those exchanges for the last few months. Because thats exactly how I felt, and thats also why Im so excited to share it with you. Since then, quite a few people have been asking me on Twitter to cover some Margin Trading and Bitfinex trading material. So here goes nothing.
DISCLAIMER: As much as I like Bitfinex and recommend them for Trading, I do not endorse the site in any way. I do not know if theyll close down today, tomorrow, or a year from now. I also do not know how they handle their funds internally and whether that will pose a problem in the near future. Please trade with caution, and only use money you can afford to lose. If you hear anything negative (e.g. withdrawl issues etc.) about Bitfinex on Reddit/Bitcointalk/Twitter, please make sure to let me know too!
@Vinnigar1 Yes understand. My point is, you can do what youre already doing, but BETTER, with Bitfinex.
— Alvin Lee (@onemanatatime) January 18, 2014 You must be wondering, first of all, what exactly is Margin Trading? In a nutshell, margin trading is basically borrowing money from the broker (trading site) for trading. Bitfinex currently offers a leverage of 1:1 up to 2.5:1, meaning that you can borrow 1 up to 2.5 Bitcoin for every 1 Bitcoin deposited. For beginner traders, I suggest changing your leverage right after you set up you account to 1:1. Keep in mind that by borrowing funds, youll be subjected to interest charges (10-13%) which is automatically factored in when you close your position. If youre inexperienced, please listen to my advice, or you could get burnt badly (although 2.5 leverage is pretty decent). For example, if you use 2.5:1 leverage, and short sell your whole account from $800, but price goes up by $800/2.5=$320 to $1120, youre going to lose ALL your Bitcoin in your account (even lower than that actually, because of a platforms stop-out level and margin call). Of course, this can be easily managed with a good trade size & risk management strategy, which I will cover later.
There are 3 options to choose from on Bitfinex; Exchange, Margin Trade, and Liquidity Swaps. If you head to their how it works page, youll be able to find a good explaination of each of the 3 different functions available. More importantly, I will only focus on Margin Trading, because thats all youll need to get started on Bitcoin/Litecoin trading.
What is Margin Trading? Abstract from Bitfinex.
Let me just orientate you the site before we go on further. Once you create your Bitfinex account, youll arrive at this page as you see below. So first of all, click on Margin Trade, and select the currency pair that you would like to trade. Secondly, you can see your active positions held, for example I have a sell order (indicated by the - sign) at a price of $845, and Im making ~5% on my trade at the time of posting. You can also see a close action available, which allows you to close your position at the current market price. Thirdly, you can see some of my active orders; red is sell, and green is buy. I have already set 5 different buy positions on $BTCUSD at $701, $688, $622, $555, $471, and 3 sells at $850, $899, and $988. You can see already, that theres much more room to play around with trading on Bitfinex as compared to a traditional exchange. And lastly, the 4th section is where you place your orders. Theres 5 different kinds of order types, namely Limit, Market, Stop, Trailing Stop, and Fill or Kill. Do read the links provided for an explaination of each different order type.
So what well focus on here is how to actually place orders, and how to manage your orders on Bitfinex. For more about technical analysis and an introduction to trading strategies, visit my previous blog post here. If youre thinking of starting out on trading, I highly advice reading the linked article, as well as this set of very good resources by Reddit user ClydeMachine.
Lets say we deposit 10 Bitcoins into Bitfinex for trading, and we think that the general trend is going down, and want to place a short sell to capitalize on the fall. Youll place a Limit Order, enter your price say $850, for a total of 1 Bitcoin, and click the Margin Sell button. Lets also say from Technical Analysis you figure out that the next support levels are at $760, and $700. So at the same time, you can also place a Limit Buy order for something like 0.5 BTC at $760, and 0.5 BTC at $700. On top of that, if you think that theres a strong resistance at $900 and feel that it may break up to $900 but not beyond that, you can also place a Stop Buy Order at $910, or a Trailing Stop Order for $60 (provided its currently $850, it will add on the market price -- they both work the same way, only different in the way the position is entered). And if youre going long (buying because you think the market is bullish), itll be the exact opposite of a short sell as mentioned above.
When your $850 sell order is reached, it will then appear on your Active Orders (section 2) list. From there, if the price moves in your favour, and reaches $700, youll make 0.5*($850-$760) + 0.5*($850-$700) for a total profit of $120. Point to note is that your Limit orders will cancel each other out. On the other hand if market moves against your favour, and completes your Stop or Trailing stop orders at $910, youll lose $60 on your trade.
With regard to choosing a suitable leverage for yourself, this is really up to your own personal risk preference, as well as how much you have to trade with. If you have more BTC to play around with, you can choose to deposit more and use a low leverage, unless of course youre in the mood to gamble. But again, please trade safe. This more or less covers Bitcoin trading on Bitfinex. Sign up with me and get 10% off your trading fees for 30 days here. If you have more questions, feel free to tweet me @onemanatatime.
Trust me, just try it out. Shoot away with any questions you have. #Bitcoin #Margin #Trading https://t.co/i5PliWJiz6
— Alvin Lee (@onemanatatime) January 18, 2014 With that, I just want to also cover some of the basics of Bitcoin Trading and share what I think are the most important tips for you traders out there. If youre thinking, why should you listen to me; I have to be honest and say that Ive only been trading Bitcoin since September 2013, although I have some experience from Forex Automated Trading since November 2012. On the other hand, since making my first few mistakes trading, Ive been putting a lot of effort into researching the topic, and I believe I have a pretty good fundamental understanding of the Bitcoin market. I like to think that I learn pretty fast, but who knows, I could just be getting lucky. Either way, Ive made a few pretty good predictions since early December 2013, and Im just here to help all of you who are interested to learn more.
As mentioned right at the start, one of the most important traits of a good trader is to be disciplined in your trade sizes and plan a risk management strategy that suits your risk-propensity and style. Before you dismiss the importance of this statement, I just want to add that Ive been playing poker for over 5 years, and I know how important money management is in being successful as a poker player; and trading is no different. In Equities/Forex trading, traders typically risk 1-2% of their whole portfolio on any single trade. On the other hand, I understand that this % is wayyyy too small for any of you reading this (all you gamblers...). Ill just point out that I typically risk about 10% of my whole portfolio on each position, and up to 50% for active trades. If Bitcoin goes to $400-500 within the next 4 weeks, Ill be sure to be going all-in on a long position.
Keep your risks small and constant : Trading Card #44 pic.twitter.com/6f0rRXAgow
— Trading Cards (@TraderHMS) January 16, 2014 Secondly, the markets are ever evolving. Dont rely on static indicators or use past price-actions as a judgement of the future. Bitcoin is a largely free-floating market with no party controlling it per say (although you can argue that governments can manipulate prices, such as Chinas ban), and as such the price is truly an average price based on the sentiment of market participants. What comes as a surprise to me, is that there is still a very large uncertainty among the general adopter of bitcoin regarding its future potential. As such, were currently seeing the tanking/falling of price I have been predicting for a week. On the other hand, any critical news (government level more than anything else) can affect Bitcoin price drastically and well have to see how China acts over the next weeks. I personally believe well see a last dip, before prices start climbing up, and finally breaking $1200 around March or April (start of the financial year, and well see huge businesses follow Overstocks lead, as well as investor and Wall St $$ pour into Bitcoin) this year and well probably see the start of the next bubble. In fact, I would make another bold prediction for 2014, that China will reverse this current ban. Things are heating up, and will get crazy. This time, be smart!Your trading strategy must be dynamic and ever evolving: Trading Card #37 pic.twitter.com/ZSSO4Bkzc9
— Trading Cards (@TraderHMS) January 18, 2014 Lastly, plan your trades well! Dont jump into a trade without having planned out not just your entry position, but your exit plan (stop loss) as well as your target price. If you cant determine either one, wait for a better setup! Always look for a setup where you have a higher reward to risk ratio, of at least 2:1. Meaning that your stop loss is $50 away, while your take profit is $100 away.Ive also compiled a few of the most commonly asked questions I came across over the last few days:
- How do you judge price levels / How do you do Technical Analysis?
First of all, please take TA only as a supplement to fundmental analysis, and more importantly with general market sentiment and psychology. For now, all I use is Fibonacci, and some basic resistance/support based on previous price-action. Nothing spectacular at all. As you can see, Im not a very experienced trader, and really dont pay much attention to TA (but it helps, although too much TA is not good either). Thats why I prefer to use a crystal ball..@manekari I should also point out that almost no TA was involved. I bought a crystal ball yesterday instead. pic.twitter.com/fSLbPpTlEH
— Alvin Lee (@onemanatatime) January 10, 2014 - Why do you think price is going down now?
I think news is factored in by the time you hear about it (more or less), and this only becomes more true as time goes on. It is more important to look at the market as a whole, from a birds eye view. Think about the psychology of the market. For example, currently markets are bearish (since the huge drop 5th December 2013, coupled with a lower low on the 18th Dec, and a double top at around $1000) and many are uncertain of how China is going to act moving forward, and hence are generally uncertain about Bitcoins future. Well need some big news for prices to start climbing up again, but thatll just be a matter of time. - I have lost a bunch of coins in the past from stupid trades. I have lost confidence in trading.
Learn to manage your trades & crypto portfolio. My general guideline to everyone is to keep at least 50% in BTC/LTC and largely for the long haul, maybe about 20-30% for trading, and use the rest for your favourite Altcoins. Altcoin prices are highly volatile, and when prices of Bitcoin fall, youll see that Altcoins fall much much harder. On the other hand, when Bitcoin goes up, youll see Altcoins climb much faster. Considering that, nowd be a perfect time to stock up on cheap altcoins until Bitcoin starts climbing again. - I (think I) believe in Bitcoins future. Should I be worried about the price dropping?
If you really believe in Bitcoins future, gather as much FIAT as you can right now and buy your Bitcoin while we still have prices under $850. We probably wont be seeing such prices again once Bitcoin starts to skyrocket past $1200, making the November 2013 bubble look like nothing; just think how the April 2013 bubble looked like in November. Oh, and Bitcoin is going to change the world.
So there you go, I hope this post can help you get started on Bitcoin Margin Trading. If you havent got your account by now, sign up with my referral code and enjoy 10% off your trading fees for the first 30 days. Click here to get started on Bitfinex.
Lastly, Im building a list of very strong Bitcoin traders on Twitter, and looking to find only the best thought leaders on the topic. Do check it out the Crypto Trading List and feel free to give any feedback or suggestions for who else should be in there. Also feel free to visit my TradingView profile where I chart out my Bitcoin (and some Litecoin soon) predictions. If you havent watched this video by @ChrisDunnTV, highly recommend checking it out!
Bitcoin Basics (Part 5) - "How To Make Money Trading Bitcoin"
Im thinking of a few topics for my next blog post. Would you like to see something about Bitcoin Daytrading & Technical Analysis, a revisit & review of Altcoins, Poker & Daytrading, or something about Dogecoin? Drop a comment, send me a message with the form right at the bottom, or tweet me at @onemanatatime.
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