Crypto Academy week 12 - Homework post for @stream4u

INTRODUCTION

Margin trading and Leveraged tokens trading have made a lot of people a lot of money. Still, a lot of people have lost a lot on this type of trading. Just like any venture, it’s important to know what you’re getting into before starting. Professor @stream4u always does a great job breaking these trading concepts down. Now I will get into the assignments given.

What Is Crypto Margin Trading?

Crypto margin trading is simply a way of trading cryptos that a trader cannot normally afford. In this type of trading, a third party lends out funds to the trader to improve his position.

How it works

For a margin trade to be set, the trader has to commit a percentage of the borrowed total as collateral. This amount is referred to as the margin or marginal amount. After it is committed, the trader can choose to leverage by 2:1, 3:1 or even 100:1 represented as 2x, 4x and 100x respectively.

If, for example, the trader chooses to leverage 3x on $100 to buy ETH, he would be able to buy ETH of $300 borrowed money. The money borrowed is either from the exchange itself or from other traders who make profits from interest accrued. Due to the 3x leverage, any move is tripled making the trade more rewarding but riskier too. If there was meant to be a $10 gain, the trader would make $30 but if it was a $10 loss, he would lose $30. If it gets to a point where the loss accrued is so much, a Margin Call is made and the account gets liquidated. The trader loses from his own account.

Margin calls are made when the balance of an account goes below the Maintenance Margin which is the minimum available amount required when a leveraged purchase has been made.

How To Plan For Trading In Crypto Margin Trading.

A trader that wants to make the best of the crypto market has to have clear plans that define his strategy. For margin trading, the following should be considered:

• There should be proper mental preparation. A trader shouldn’t trade while he is sleepy.

• Proper analysis of the market should be done to determine the best entry and exit points. As the professor had said, margin trading should be done on an intraday basis usually on a 5-15 minutes time frame.

• The amount of equity should be determined. It is important not to use all available income to avoid bankruptcy.

• The leverage should also be determined. It’s important to know what leverage you are comfortable with as a trader. A beginner trader should not go for leverage levels like 50x. A skilled trader can go for higher leverages but it should be planned and executed correctly. All in all, greed should be avoided as much as possible.

Crypto Exchanges Name That Provide Margin Trading Service and What Margin They Provide?

Margin trading is now very popular in the crypto world. Binance is the most popular platform for crypto margin trading with two margin trading types namely cross margin and isolated margin.

The isolated margin is one where the risk and reward are calculated on one independent position. This has leverages of 3x, 5x and 10x.

However, the cross margin is one where the risk and reward are calculated across all positions. It has leverages of 3x and 5x.

Below are some other exchanges that offer margin trading:

Exchange	Leverage range
Huobi	Up to 3x
Poloniex	Up to 5x
Kraken	Up to 5x
Bitmex	Up to 100x

What Is Leveraged Tokens Trading?

Leveraged tokens are no regular tokens. These special ERC-20 tokens provide traders with a means of earning even in bearish markets with less risk consideration.

Leveraged tokens are not held but are traded based on the trend of an underlying cryptocurrency. Trading these tokens is more or less like and agreement where you predict the price movement of a crypto without actually having the coin. For this reason, no funds are actually given out and so no collateral is involved and there is no liquidation risk.

How it works

Leverage tokens can either be found as UP/BULL or DOWN/BEAR. A trader that wishes to leverage his trading in a bullish market can purchase UP/BULL tokens. Similarly, a trader that wishes to leverage his trading in a bearish market can purchase DOWN/BEAR tokens. Let’s take an example;

Taking a coin like BNB which is represented by leveraged tokens on binance as BNBUP and BNBDOWN. The BNBUP token would be traded to favor bullish conditions while the BNBDOWN tokens will be traded to Favour bearish conditions. The charts are shown below:

From the images above, we can see that the BNB/USDT chart is in an uptrend. This normal chart is reflected by the BNBUP/USDT chart. The BNBDOWN/USDT chart, however, is on a downtrend because the market is bullish. Although BNB has reduced in price over a few hours, the general trend shows that the market is bullish.

How To Plan For Trading In Leveraged Tokens?

There are always high risks when dealing with leverage in trading. So, to trade with them requires serious planning. Some of the things to consider are:

• Trend: When preparing to trade leverage tokens, the overall trend of the asset should be taken into consideration rather than a singular price movement. It is key to be good at technical analysis to succeed in this.

• The exchange to trade on should also be considered because different exchanges offer different types of leverages.

Crypto Exchanges Name That Provide Leveraged Tokens Service and What Margin They Provide In Leveraged Tokens?

Just as in the case of margin trading, leverage tokens have become increasingly popular in the crypto market. As usual, Binance is a major player with its Binance Leveraged Tokens that operate with a variable leverage rather than a fixed leverage.

A fixed leverage is one that adjusts the trader’s position when the leverage ratio deviates from the target leverage ratio due to price change.

A variable leverage is one where the leverage ratio is constantly changing to match the target leverage. Binance offers this type of leverage in the range of 1.25x and 4x.

Below are some other exchanges that offer leverage token trading:

Exchange	Leverage range
Poloniex	Up to 3x
Bittrex	Up to 3x
FTX	Up to 3x

Price Forcast For Crypto Assets XXXXXX.

For this task, I would be looking at BNB/USDT chart:

Using a 6 minutes chart, we can see that BNB just came out of downtrend. I can support this with the RSI tool we were taught how to use by professor @kouba01. The coin’s price has been hovering below the 50 mark.

I marked a reoccurring support level with a blue line. Notice that when it touches the support it always bounces up.

There is also a resistance at 633.46 which I marked with a red line. This resistance was broken and became a support level before the price fell below it again. The line had already been tested. Once it is broken, the movement will be upward.

We can also see a pattern of uptrends that follow downtrends as I marked with the green lines.

From the above, my conclusion is as follows:

The price will breakaway at 633.46 with the first target at 660. At this point, it might either retrace or go all the way to 680.

If I enter the market now, once it gets to 660 I would take profit.

CONCLUSION

Margin trading and leverage tokens trading have become essential trading tools in the crypto market. With a lot of people looking to maximize profits no matter the conditions, these products are very much attractive. However, the reward comes with with a greater amount of risk.