I hope you’ve watched other videos and know enough about crypto
that you're now looking to actually put the pedal to the metal and start investing, alright?
Well, keep in mind, I'm not a financial investor.
But if you haven't done your research, I recommend you take a deep breath, exhale, and go do your research.
Now, if you’ve already been researching crypto,
there are lots of possible ways and strategies that you can use when looking to make money in the cryptocurrency market.
And depending on your intentions, time and effort, you can apply different strategies.
Today, we're going to look at how you can actually start investing in crypto and what strategies and possibilities you have when investing.
Let's get it.
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Alright,guys. Now that you've decided to start investing in crypto,
there are some things you need to be aware of and consider before you ever think of actually getting off the starting line.
First things first, don't trade assets you can't lose.
Most beginning traders, and we can all attest to this because we've all been there, will lose money.
I'm no exception. I made my mistakes too and have learned from them.
And that's what I want to tell you about.
Make sure that you're also not too invested if this is your first time trading.
Make sure this is not your only source of income as it is likely that you're going to lose
before you can make the mad gains everyone is talking about.
I feel like your dad here though, but the general advice is always the same.
Don't be stupid.
BYOB.
Bring your own brain.
It is generally advised to trade smaller accounts you've been able to make a profit off of and are comfortable enough to trade into larger amounts.
Having all the caveats out of the way,
let's take a look at some of the well-known trading options that you have.
- Who's ready? / - I'm ready!
Okay, now, the first weight is a little risky, maybe more than a little.
An easy way to punch over your weight is margin trading.
This is a method to trade assets borrowed from a third party.
In traditional markets, those additional funds would be lent to you by a broker,
but in crypto, those funds are usually provided by other traders through platforms designed to offer such services.
Margin trading lets you leverage your position.
In trading terms, this basically means you can embiggen the profits that you would usually have on a given trade.
I know that's not a word.
Just like a lever multiplies any force applied.
You can create those leverage positions at different rates, just like you can use a longer wrench to apply more force.
But I know most of you guys are still getting your dad to do your car work.
You can actually borrow sometimes up to 100X what you have to trade with.
Using a leveraged position, you can then enter trades without having to front that much capital.
So how does this work?
Well, let's say that you're entering a 10 times leverage position with a margin of $100,
meaning that you enter a total position of $1,000.
Should the price of the asset you're trading on go down to 10%, that would be covering your entire margin.
That means that if the price goes down any lower, it would be eating into the borrowed funds and not into the margin.
Any sane lender would not risk their assets on your behalf.
So your position is liquidated to be able to have the needed funds to repay the lending party,
and your position is closed.
Liquidation in this manner usually does incur fines, and given that you can lose more money than you initially invest,
these can be relatively risky.
You can see how leverage trading works here.
The amplification effect does work both ways as you amplify your losses as well
leading to the possibility of going over your margin,
and you can be at risk of liquidation.
Now, let's look at derivatives and the typical types of derivatives.
In short, a derivative is a financial asset with a value that is derived from an underlying asset or a group of assets.
Whatever asset is used as a reference point, the core concept is that the derivative product derives its value from it.
A futures contract is a type of derivative that lets you speculate on the price of a given asset at a later date.
You basically say that a given asset will be at a certain fixed price at a later date
and take a position on it, short or long.
A short position is when an investor buys an asset with plans to sell it at a later predefined contract price,
while a long position means entering a contract to buy the underlying instrument at the contract price at expiration.
So, what does this mean?
Well, let's say that you settled to buy one Bitcoin at a price of $10,000 by the end of the year.
Should the price of that Bitcoin go above that settled price by that date, you will essentially have made a profit.
Let's just say that by the end of the year, the Bitcoin price is at $12,000.
You will still be buying it at $10,000.
You will essentially have made a profit of $2,000, while the person that you entered the contract with would have made a loss.
Someone always loses.
These futures contracts can also be bought and sold independently,
without having to wait for the settlement date to anyone willing to buy them.
Future contracts are typically used as a way to hedge other investments,
or to lock in profit when trading in volatile markets.
You can mitigate the risk of a falling price by taking a short future position on the asset.
If the price falls, the short position will mitigate losses by providing additional revenue.
Now, unlike the traditional futures contract,
a perpetual futures contract does not have the pesky expiration date or expiry dates,
and you can hold your position as long as you like.
Imagine you placed a futures contract on buying Bitcoin in 2016 when it was worth $4,000,
and you said, Sure, I'll buy that Bitcoin in, let's say, 500 and a day later.
Given that it's now worth around 10,000, you could end up with a massive disparity between the contract and the actual price of the asset.
This is where we get into what we call funding rates.
These are rates paid between parties that are meant to keep the perpetual market in check.
How does that work?
Well, should the perpetual market price be above the going rate,
the funding rate will be positive and a portion of the difference between these perpetual futures
and that going rate is paid for the people who are going long to those who are going short.
Should the difference be negative and the perpetual market be below the going rate,
then the people going short pay those going long.
This means the perpetual markets stay close to the spot markets.
Leveraged tokens are another way to gain a leverage position without having to deal with all the hassle of managing it.
This is done through tokens that act like multipliers for another token.
These tokens are essentially perpetual contracts hiding as tokens.
Each leverage token gets its price action by trading perpetual futures.
These buy and sell tokens that you invest in according to the leverage they have.
Your risk is always gonna be proportionate to your leverage.
For example, if you buy one unit token that offers 3 times the value of ETH, you'd essentially be buying 3 ETH,
as the leverage token will go ahead and do exactly that.
Now, how exactly do these tokens have that leverage?
Everyday, the leverage tokens rebalance,
which means that each leverage token trades on the perpetual futures market in order to once again reach its target leverage.
Should the markets move faster than usual, or coins be at risk of liquidation, it will rebalance again during the day to avoid this.
Just like in margin trading, the effects are amplified, and the leverage tokens will move much more violently than the coins that they are leveraging.
But they do provide some benefits that tokens provide, like being traded.
As you can see, there's a wide array of options to those looking to make money in cryptocurrency by trading.
But now it’s your turn.
Are you considering taking a leveraged position?
Which other trading methods are you interested in?
Let me know what you think in the comment section down below.
I hope you enjoyed this video.
If you did, please make sure to smash the Like button and hit Subscribe to become a member of the BitSquad.
Thank you so much for watching.
Have a blessed day.
BitBoy out.