Leveraged trading is in general about using borrowed funds to trade cryptocurrencies. It is mainly used to increase a profit from the investment. The leverage is described as a ratio, it shows how many times your investment will be multiplied. Imagine that you want to invest $1000 in Ethereum. You can do it by putting $100 with 10x leverage. It can be applied to short and long positions. Short means that you predict that the price will go down, and long means that you predict it will go up. So, using leverage allows you to earn money during the dip, too!
Imagine that you want to open a long position worth $5000 of ETH with 20x leverage. In this case, you put $250 as your deposit. If the price of ETH goes up 10%, you can earn 200% of your initial investment so that equals $500. Sounds great, yeah? If the price goes down 10%, you would be liquidated at this level, but in fact also when the price drops 5%. Because the loss in percent is multiplied by the leverage, if it hits 100% - your position is liquidated.
When it comes to the short position, the system is the same but you earn once the price goes down and lose once the price goes up.
Leverage trading can bring huge gains but also losses. That is why you should not invest more than you are willing to lose, especially in leverage trading. You can lose your whole capital there. It is possible to manage the risk using stop-loss and take-profit mechanisms.
Stop-loss closes the position automatically at the specific price when you lose. Take-profit does the same thing but when you earn. Obviously, you can set the price or amount of profit/loss. It allows you to keep your investment secure when you are offline or when the market moves in an unexpected way.
Day trading refers to leverage trading but the position must be made and closed within one day. People usually set positions with high leverage ratios. Traders usually use technical analysis to predict the next move of the coin. That includes many indicators, chart patterns, volume, etc. Day traders earn money from market volatility. Especially, when there is huge liquidity in the market that causes sharp increases or decreases. Adding leverage to that, it is possible to make a decent profit on the trade but also a large loss. Despite huge possible profits in this strategy, it is really stressful and requires monitoring positions sometimes for a whole day.
Swing trading is similar to day trading but it refers to positions that last a few days or even weeks. However, swing trading does not mean to be used with leverage only, but can be used in spot trading. The idea behind that kind of investing is to catch the current trend of the market. Swing traders usually make positions with a low leverage ratio to manage risks caused by a longer hold of the position. In contrast to day trading, swing trading is based more on fundamental analysis than on technical analysis.
Dollar-Cost Averaging (DCA)
Dollar-Cost Averaging is a much safer strategy than leverage. It refers to buying the asset for a fixed price at regular intervals, for example buying BTC for $10 weekly. It reduces the volatility of the investment and averages the price of the whole investment. Buying at the lowest dip or buying at the highest peak is an unpredictable thing, so DCA helps to average the cost of the whole investment.
Let’s look at that through an example. Imagine that you want to buy a certain amount of Bitcoin worth $5000. Of course, you can make a single purchase using the whole budget of the investment. However, you can also divide that amount into 100 pieces for $50 each. Suppose you buy it every day, it spreads your investment period for three months. The price of Bitcoin may be dropping during those three months, which would make your Bitcoin balance bigger than you would have if you bought it as a single purchase at the beginning.
Usually, people do not care about dips, they even buy more there to average the cost. Remember that decent profits may appear after a long time, even years.
It is not possible for all existing exchanges to keep the same price of the same asset like Bitcoin. Due to the volume of the exchange and liquidity, prices may differ on various exchanges. Traders take advantage of that and earn from selling an asset on the different exchanges. Risk in arbitrage trading is relatively low, so the profit is. You must use a huge capital to make it worth it.
Sometimes, there might appear some differences between pairs with the same coin, for example, BTC/USD and BTC/USDT. That makes an opportunity for arbitrage traders to take quick action and take advantage of that variety. However, exchange arbitrage refers to buying an asset in one exchange and selling it in another. This type of trading can be not profitable for people with small capital, small differences in price and transaction fees may make the deal not worth it for them.
It involves more transactions than exchange arbitrage, but with no transaction fees, because the whole process takes place on the same exchange. The trader notices a price discrepancy in more than two crypto assets and exchanges them for one another ending at the initial asset.
There are many investment strategies that you can choose from. Some of them are riskier but may give gains quickly, others are less risky but may give gains over a longer period. Remember to do your own research before investing.
Technical analysis - is a method of predicting the price of an asset in the near future relying on volume, price movement, and trading indicators.
Fundamental analysis - is a method of defining the value of an asset or a company. In the cryptocurrency field, fundamental analysis usually refers to examining both microeconomic and macroeconomic events, the development, reputation, market capitalization, and many other economic factors.