Trading Strategies for BUSD-Margined Futures Contracts
The BUSD-margined futures contract might be risky, but it has its appeals — those mouth-watering ROEs are difficult to resist. Centralized exchanges have made margin trading available to everyone — a situation appreciated by low earners.
Through BUSD-margined contracts, traders can attempt bigger trades beyond their current equity. It’s like borrowing money from the exchange to trade. Of course, there are stringent conditions. One of those is the greatly feared asset liquidation.
Understanding Margin Trading
It’s tempting to jump on the margin trading bandwagon. Yet, you shouldn’t get involved without learning the basics. First, you must have some disposable capital to open a BUSD-margined contract. The use of the term ‘disposable’ is intentional. Your equity can come to naught in the twinkling of an eye.
With your disposable equity, you can borrow more trading capital through the leverage option. For instance, you have $200 BUSD disposable equity, leverage gives you access to as much as ×100 of your capital.
However, the higher the leverage, the higher the risk. Lenders want more for their money as you increase leverage. This explains the high liquidation price that high leverage margin traders have to contend with. The volatility of the prices of cryptocurrencies makes margin trading both lucrative and risky, depending on what side of the divide you belong. A proper understanding of how margin trading works is crucial if you intend to excel at it.
Trading Strategies for BUSD-Margined Contracts
Though the house always wins, you can win as well. Margin trading isn’t all gloom. There are trading strategies that can help you gear up for the risky terrain. Here are some of these trading strategies for navigating BUSD-margined contracts:
Get Spot Trading Know-How
You should have some experience with spot trading before stepping into the deeper waters of margin trading. Some experience in spot trading prepares you for the rollercoaster ride of margin trading. A lot of people jump into margin trading without any trading knowledge. They just see all those screenshots and think it’s raining BUSDs in margin trading.
No one should hurry into margin trading. Margin trading is a culmination of some spot trading experience. So if you don’t have some experience in that area, then you shouldn’t get into margin trading.
Manage Your Risks
The last thing you want to do in margin trading is to get greedy. I have seen traders open large BUSD-margined contracts with small equity. That’s greed, and it never ends well. Succeeding at margin trading isn’t just about reading charts. The ability to check your greed level is a valuable skillset; unfortunately, many traders lack that.
If you’re just venturing into margin trading, eat the humble pie. Test the waters by opening small positions. This way, if shit hits the fan — as it often does — you’re not burned badly. Opening multiple positions or taking large asset sizes increases the risk of being liquidated. Don’t get tempted by all those signals flying arNeeded
Dollar-Cost Averaging (DCA)
One of the best ways to kill margin trading is by using DCA. Here, instead of buying an asset with your entire equity, you buy in bits at different price levels. As the price of an asset goes down, you buy more. Applying DCA to margin helps reduce your entry price. And with a lower entry price, liquidation price drops down.
You can open multiple BUSD-margined contracts of the same asset at different prices, proceeding from high to low. Since prices of cryptocurrencies change massively, the DCA method is quite helpful in margin trading. The gains are quite significant — more profit and lower risk.
Cash is king. And that applies to margin trading. Keeping a BUSD-margined contract open requires capital; lots of it. Else, you’d be putting your contract at risk of liquidation.
Frankly, margin trading is profitable if you have the equity to keep liquidation away. Prices will rise and fall. Volatility isn’t always a bad thing. Margin traders can use these sharp changes in price to their advantage. But you need equity to do that. Reducing your entry prices, adding margin are ways to prevent margin calls, but equity is needed for these.
Isolated or Cross?
Different margin modes serve different purposes.
If you have ample capital and don’t mind opening trades that are fuelled by your futures balance, Cross Margin mode isn’t a bad idea.
Cross keeps your BUSD-margined contracts open relying on your margin futures balance. You don’t need to add margin yourself; the trades are connected to your Futures balance. So if the balance isn’t healthy, this margin mode is not for you.
Isolated margin mode is more of a lone ranger. It’s the DIY option. You have to add margin yourself if you’re worried about the liquidation price of your BUSD-margined contract.
Margin trading might be risky and all, but it’s still profitable. Volatility is a double-edged sword — it gives and takes.
Someone must win in margin trading. Hopefully, the trading strategies highlighted earlier helps you become that someone.
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