The past years witnessed the rapid expanding of crypto derivatives market, a growing number of exchanges offer margin trading such as BITMEX, BEX500, OKEX. Some of them offer up to 200x leverage.
Some people dismiss it as shy of gambling, while unfair, the characterization does speak for itself when inexperienced traders always surrender to emotional trading with heavily leveraged positions.
As controversial as it might be, cryptocurrency derivatives, as in the traditional equity market, is an important tool for risk hedge and speculation.
Crypto derivative is worth it when you can keep the following rules in heart.
RULE ONE Start-off Small with Proper Positions
Potential massive returns can be seductive. but the emotions get you nowhere.
Never enter a heavy leverage position until you fully understand the products. Your trading strategy should be determined by thorough analysis rather than your emotion.
BEX500 and BITMEX are two of the few exchanges that offer a free demo mode, which puts you through its rules and trading widgets.
RULE TWO Trade in the Exchange that Does NOT “Eat” Your Profits
An exchange can scale back or dismantle your profits in many subtle ways including unreasonable commissions, interest rates, slippage and manipulated prices.
- Commission Charges
your profits can be impaired if the charges are set too high given derivative trading can be frequent. the mainstream exchanges set the commission at around 0.05% per trade such as BITMEX and BEX500.
Especially BEX500 requires only 0.05% per trade. If you buy a short position for 1 BTC at a price of 10000$ per 1 BTC and your target is 8000$, even when you deduct the fixed fee, your profit can still be 1990$.
If you place the order with one price but executed at another, your profits slip away already. Although some mainstream exchanges has enough liquidity, it may have chance to cause slippage. However, BEX500 claims they feature “ZERO slippage” with dozens of liquidity suppliers. I tried several trading and it seems solid at this stage.
- Interest (Funding) Rate
Interest rate occurs every 8 hours in most exchanges, required when you hold a position at one of these times.
As low as they can be, your profits can still be stolen away.
If you can’t clear your positions before it occurs then you should select exchanges at a reasonable rate.
Although some exchanges disguise it in a subtle way, the funding rate can be as high as 0.375% per 8 hours. BEX500 and other exchanges fix the interest rate at only 0.03%, which is more bearable.
Sources: BITMEX perpetual contract guide
Sources: BEX500 perpetual contract guide
RULE THREE “Stop-Loss” Goes a Long Way
No one can predict the market, once you open a position in the wrong direction, “stop-loss” is an effective safety net. Take-profit orders are best used by short-term traders interested in managing their risk, it disciplined you to resist the temptation of “massive returns” which usually leads to bankruptcy.
BEX500 created a product called “Double Contract”, other than traditional 100x leveraged perpetual contract which is more safe and easy to trade.
It activates stop-loss and take-profit automatically, which disciplined you to get out of a losing trade and make a profit at 100%.
If you are a derivative newcomer, you are strongly recommended to give this product a try.
Like other trading tools, leverage trading in crypto has its pros and cons. How to make the best use of it? We will introduce more trading strategies later on!
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