Source: ZyCrypto, originally published on .
Investment is all about information. If a trader has reason to believe that a stock will rise or fall in value, they adjust their investments to profit off this price change. When other investors see this decision, they become aware of the investor’s expectation and adjust their strategies accordingly. In this way, the market adapts to new information about stocks, limiting losses and boosting profits for investors.
The problem with this system is that changes in stock prices are often relatively small. In order for investors to earn significant profits from such minor changes, they must be able to invest sizable amounts of money in them. Leverage trading allows them to do this, so investors have an incentive to respond to even minor price fluctuations.
Bitfair is introducing this process to the cryptocurrency market. Not only are we allowing leverage trading for a wide range of digital assets, but we are creating tools to limit total losses. In this way, we let investors leverage their positions up to 1000X, so they feel free to communicate and profit from all expected price changes, no matter their size or direction.
The Risks & Rewards of Leverage Trading
Leverage trading is a strategy for investors to place more money in an investment than they have on hand. It involves trading on margin, that covers part of the cost of the investment. Investors can wager more stocks at a time and profit heavily from even the smallest and most fleeting price changes.
In leverage trading, an investor will use their own money to cover part of the price of the investment. Leverage refers to the ratio of the total money invested to the amount of their own money they are using. If I put $20,000 of my own money in a trading account with 3 to 1 leverage, that means I can buy as much as $60,000 worth of stocks.
To understand the benefits of leverage trading, imagine that I have $10,000 to my name, and I have good reason to believe that a certain stock will increase in value by 1 percent. If I just invested the $10,000 that I own, that 1 percent increase would only earn me $100. But if I can get 10 to 1 leverage, I could buy as much as $100,000 worth of stock, allowing me to earn $1,000. Leverage thus makes the difference between negligible and sizable earnings on the stock market.
As beneficial as leveraging stock can be, it does create some severe risks that investors need to watch out for. This is because when you buy stock on margin and your predictions prove wrong, you can end up losing far more money than you otherwise would have. Let’s go back to the scenario where I invest $10,000 of my own money at 10 to 1 leverage. This time, I’m wrong about the stock price, and it actually goes down by 2 percent. Because I leveraged the trade and have to pay the margin back, I will lose $2,000 instead of the $200 I would have lost if I’d only invested my own money.
The extreme risk of leverage trading is why many investors are only willing to do it if they have stop-loss orders. Such orders limit the total amount of money investors can lose if their predictions prove false. To use the previous example again, I might use a stop-loss order to automatically sell my stock if it loses more than 1 percent of its value. This way, I would not be able to lose more than $1,000 on the trade.
Leverage Trading in the Cryptocurrency Market
Bitfair is introducing leverage trading to the cryptocurrency market. At present, only the most popular and liquid cryptocurrencies, such as Bitcoin, Ethereum, and Ripple, are available for leverage trading, and only in limited ways. We break through these limits by:
- Expanding Leverage Options– Bitfair extends leverage trading to as many cryptocurrencies as possible. This lets investors profit heavily from information about a wide range of digital assets, rather than just the most popular ones. It also allows for greater diversification, thereby limiting the risk to each investor.
- Introducing Negative Trades– Whereas leverage trading in the cryptocurrency industry is currently limited to profiting off positive price movements, Bitfair is allowing investors to short these investments. This means that if an investor expects a cryptocurrency to decrease in value, they can set themselves up to profit if and when it does. This further increases the opportunities for investment diversification.
- Setting Up Smart Option Contracts– Bitfair is creating Smart Option Contracts, or contracts that automatically enforce trading instructions based on information from a blockchain. Among other things, these contracts will allow investors to enforce strict stop-loss orders, thereby limiting their risk.
By allowing for more diversification and instituting strict stop-loss orders, Bitfair is making it safer than ever for investors to trade at even the highest leverage ratios. As a result, the platform is allowing its users to leverage their investments at an unprecedented ratio of 1000 to 1. This will introduce higher rates of profit into the cryptocurrency market while giving investors a strong incentive to use any price information they have. To learn more about this game-changing platform, visit our website today.
Name : Magdel Steyn
Cell no.: +27 74 102 4851
TG Group Link: https://t.me/bitfairhq
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