If you are a newbie in cryptocurrencies and generally in trading, avoid leverage at all costs. For the time being, this not for you yet. If you are an experienced trader or investor, just avoid trading by using too much leverage. Last but not least, both experienced and newbies should avoid crossed margin or spread margin, a margin which is supported by your entire wallet balance of the funding currency, so as to prevent liquidation. Any realized PNL from another position can aid a losing position that is close to being liquidated. Ok, for the time being, we are in a bull market, but what about the time when an extremely violent crash happens? You risk losing all your funds! Cryptocurrency markets are too much unpredictable for this movement.
In general, margin (Long & Short) is a double-edged sword for sure. It can enhance your gains, but it can also chop you down to size. Placing trades with the limited margin down means that one unforeseen swing in the market could wipe out your trading account. Here is a useful link to calculate liquidation price https://btctools.io/calculators/liquidation, depending on the entry price and the leverage used.
When we long, we believe that the price of our target asset will increase, therefore we borrow stable coins, so as to buy this particular asset, sell it when it increases to our target price, and eventually repays the borrowed funds. Therefore, you earn profit from this price difference. On the other hand, when we short, we believe that the asset’s price will fall, hence we borrow this asset and we sell it, while we buy it again when the asset’s price decreases to our target value.
This is particularly relevant in the cryptocurrency markets where you are trading incredibly volatile assets. Bitcoin has many mood swings, and a negative move can leave you with less than half your money. Leverage to that and the losses are even more severe. Moreover, there is no reason whatsoever for you to max out your leverage. Just because you can trade with 10 times your capital, does not mean you should. You can be just as successful in the long run using the leverage of even less than 3 times. So, a well-thought-out money management strategy beforehand with a carefully crafted risk management strategy is the most effective way to stay in the game even in the bad times.