NOTE: Margin trading is extremely risky. The chances of losing your investment is closer to imminent than with any other investment product. Never invest more than 2% of your total investment capital in margin trading.
You will need to master certain techniques from our previous courses to be able to understand and begin margin trading.
Margin trading is a way to 'borrow' money from an exchange and, with this borrowed money on top of your investment, buy more stocks than your total deposited balance on that exchange could afford.
But as you know, when you borrow money there is a 'but...' Well, the catch is that when your trade is going haywire and you go passed a certain threshold the exchange set up for you they get the money they borrowed you AND your investment. But when the trade is in profit when you sell it you can keep the total profit made and you give back their money without additional costs (just a little transaction fee).
For instance: when you deposit 0.01BTC to Bitmex you can choose to let them lend you (for example) 0.09BTC to invest a total of 0.1BTC. If the trade goes -10% they keep it all. If the total investment of 0.1BTC goes up 10% you need to give them the borrowed money back but you can keep the profit the total investment made and you get your own money back too. so in this case that would be 0.01BTC(your investment) + 10% of 0.1BTC = 0.02 BTC. A beautiful profit of 100%!
When you transfer bitcoin (Account->Deposit) to your margin trading account it ends up in your margin trading account's wallet, referred to as 'available balance'. (remember this term because future terms might sound alike but have different applications)
This is the money you really own, the money they will multiply to invest and the money you'll need to divide over several parameters (explained later) that are used to make a good and safe margin trade investment.
How To Borrow Money From The Margin Trading Exchange
Borrowing an amount of money that exceeds your available balance (or, the actual amount of bitcoin you deposited on your account) can be done using a function that asks the margin trading website to borrow you a multiplication (for instance x5 or x10) of the amount you deposited. This is called 'leveraging' (but they should simply call it 'multiplying' instead of using some fancy name).
For example: if you have deposited 0.01BTC on your margin trading account the margin trading exchange allows you to let them add a multiplication of this 0.01BTC to your investable money so in case you ask them to borrow you 10x your 0.01BTC 'available balance' this gives you the possibility to invest 0.1BTC on the exchange. This is called a 'leverage of 10x' and you'll find the leveraging options in the left side bar on Bitmex.
Sounds nice right? But... (there is always a 'but') the thing they ask in return for the money they borrowed you is that you tell them in which direction you think the price will go.
Why? (And this is why they agree to borrow you so much money) If the price moves in the opposite direction of your prediction they will claim (or in their fancy language 'liquidate') your investment.
For example: you have 0.01BTC on your 'available balance', you 'leverage' it 10x so you can invest 0.1BTC. Your, now well-educated due to our previous courses, analysis tells you that the price will probably go up. Then you might decide to make/open an agreement (also called a 'contract') with the exchange to borrow 10x your available balance and invest your now total balance of 0.1BTC by making a contract with the margin trading exchange that says that: you can borrow 0.1BTC but if the price of Bitcoin drops $200 the margin trading exchange will get your 0.01BTC (your personal money).
How To Open A Contract On A Margin Trading Account?
They (once again) gave the names you have to know and click on to open a position and start trading with the total amount of money a fancy name. if you want to open a contract because your analysis tells you that the price might go up this contract can be found and placed by clicking on the button with the name 'buy market' (also referred to in the communities as a 'Long') contract, if you thing it'll go down and want to make a contract that says they can liquidate if the price rises too high this button is called 'sell market' (or a 'Short') contract (and these names have nothing to do with the duration of the contract or either they mean your selling them (in case of the 'sell market', they are just stupid names).
Finally there is one last thing you need to know and that is that you buy an certain amount of contracts and not an amount of bitcoin and every single one of these contracts is worth $1 or something like 0.00001BTC (depending on BTC's price) so if you want to invest 0.1 BTC in this case you'll need to buy 1000 (long or short) contracts.
So you've deposited 0.01BTC and you have set your leverage (and do this first) to 10x. You can now spend 0.1BTC (your total available balance + the margin trading exchanges borrowed leverage). let's say that 1BTC is worth, $10 000. So you can buy 1000 contracts ($1000). you decide it will probably go 'Long' and want buy 1000 long contracts. Your 'available balance' will say 0.01BTC (that's what you deposited) but your 'order value' will be 0.1BTC (because your also using the 0.09BTC leverage the exchange borrowed you). Now you choose the BTC price at which you want buy the contracts, click the green button 'Buy Market' (you think the price will go up) or red button 'Sell Market' (the price will go down). note: You buy contracts in both instances but the green 'Buy Market' will open/buy 'Long' contracts and the red 'Sell Market' will open/buy 'Short' contracts. Then wait for the orders to fill (and as it goes on exchanges you could maybe add a dollar or two to you buying price to make sure your order is immediately filled).
After this there is a last step to be done and that is to check your liquidation price.
You navigate to 'Positions' in the top bar of the information box (not titled information box but that's where all the information about rout trades ends up) and after your order filled check under 'Liq. Price', this is the price at which they will claim your investment. You can make the liquidation price move a bit further away from your buying price by clicking on the number displayed under the 'margin' row and adding some BTC from your available balance. NOTE: In the example above I never left some money in the available balance to add to my margin afterwards but you should definitely not invest all of your 'available balance' (or your personal money) if you want to go marging trading with a high leverage (you can go as high as 100x but your liquidation price will then be extremely close to your buying price too of course) because you can add this to your liquidation margin after the order is filled. We recommend to leave half of your available balance untouched to add to your margin(s) after you purchased some contracts.
Step By Step
1) You deposit BTC to your 'available balance', you can do this under 'account'->'deposit' (BTC only!)
2) Go back to 'Trade' and make sure that 'Bitcoin XBT' is selected in the top bar and 'perpetual' in the small bar right underneath it.
3) Set your leverage in the left column which you might have to unfold (start of with 2x to figure out how everything works first).
4) Select 'Limit' in the 'place order' box which you might have to unfold and manually fill in the price at which you want to buy your contracts.
5) Chose the amount of contracts you want to buy (long or short) and in the 'place order' box which you also might have to fold out and compare the 'Order Value'(= your investment + the leverage you borrowed) with your 'Available Balance' (deposited BTC) to make sure there is some BTC left to add to your margin after the purchase.
6) Click on the green button (the price will go up/long) or red button (the price will go down/short) to buy your contracts.
7) Wait for them to fill.
8) When filled, navigate to the 'positions' tab in a box you'll find somewhere on the screen and verify your liquidation price next to your order in the row called 'Liq. Price'. if this has not enough margin for your comfort add (some of) the remaining BTC in from your 'available balance' to the margin by clicking on the information given next to your order in the 'margin' row and follow the steps in the pop-up window to add some margin and verify if a green pop-up confirms the adding of the margin.
9) Add alarms in your portfolio tracking app.
10) Check your gains or losses in the 'Unrealised PNL'(PNL = Profit and Loss) row next to your order. (they won't show up until the amount is greater than 0.0001BTC)
11) Sell you contracts by clicking on the little red button that says 'Market' in the 'close position' row to realise your unrealised PNL. The money you will receive is your personal investment + the profit (not the money they borrowed you).
12) Don't forget to sleep 8 hours a day.
Credits: Kenzo Voets, Coin Candy Team.
Copyright 2018, coin-candy.com, all rights reserved. This course may not be distributed without consent of Coin Candy or Kenzo Voets (don't worry you'll get it, just ask). Contact: Marketing@coin-candy.com.)