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He Gained $750,000 On Spot Trading, Lost It all On 2x Leverage Trading. What Could have Gone Wrong?

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Avatar for Ugomarcel
Written by   14
5 months ago

Some trading stories would make you sit down and wonder if they really did happen. But when you remember this is crypto, you would realise it is truly what it is. Strange stories, but 100% possible in crypto.

https://twitter.com/coinfessions/status/1540696407572480003?s=20&t=I_QtPe__GqMVjZYtTySbcA

Trading the financial market, crypto currencies especially, carries with it a whole lot of risk.

Dylan Calluy unsplash.com

For the untrained, it is more like taking a gamble. You could definitely loose your whole funds,and that's even putting it mildly.

Trading requires a lot of skills and know how, that takes time to acquire. The irony of it is, even as a so called professional trader, you could still loose money. Maybe not as much as a Novice trader.

I have lost money trading, so many times, Even as someone with a fair knowledge of trading. I have never been liquidated though. Not because am a pro(I am far from one) but because I am fearful enough to always use some safety measures when trading. It might not be fool proof 100%, but they have prevented my portfolio from some major loses. Sometimes I wonder how people loose so much amount of money trading. Then I see this particular story and am awed.

So, going through twitter few days a go, I stumbled on this story. Sounds unbelievable but seems true. Given the token involved.

Source :Kraken images unsplash.com

According to this person, he was able to build his trading account to $750,000 in 3 years spot trading. Quite impressive if you ask me. Unfortunately, He subsequently lost all, $750,000, trading Luna with 2x leverage. Does this even sound possible? Just 2x position! What could he have done wrong.

I try to imagine where it could have gone wrong for him. Things he did and things he didn't do that could have cost him that much. I might not be a pro like him(building an account to $750k takes a lot) but I could see some mistakes. Maybe some level of overconfidence leading to oversights in this particular trade. I doubt I would make this costly mistake. But hey, you never know. Nobody is infallible. ?

SO WHAT HAPPENED?

Simone Secci unsplash.com

Stay with me.

SO WHAT HAPPENED TO STOP LOSS?

As a rule, never trade without a stop loss. This is one salient rule in trading. From day one you are made to know this. As much as you are confident on a trade, you should know, nothing is given in this market. 1+1 is not always 2. I strongly believed he didn't use a stop loss or better still kept adjusting it to accommodate a losing position. People could be that confident a reversal is coming, only for their account to be liquidated. For me I set a stop loss and forget about the trade, if it hits it, am out and done with the trade.

RISKING ALL IN ONE TRADE

Who does that? Well, apparently this person does. Loosing $750,000 on one trade. But how do you risk all your funds on just one trade? To a good trader, risking even 10% of their portfolio could be crazy,especially in leverage trading. I can't see myself risking more than 5% on a trade. I believe if he had used a proper risk /reward ratio, he would probably not have lost much.

DIVERSIFICATION

There are many assets he could have spread his funds. Cryptos, stock, forex. Diversification is always key when you have such funds. Perhaps he built that money in the first place trading just one assets. If that was so, it was always a disaster waiting to happen. And it eventually happened.

CROSS/ISOLATED MARGIN

How people choose cross margin as an option, trading futures, beats me. In cross even your other assets are not spared if the market goes against you. What happened to isolated margin?

KNOW WHEN TO RUN

When you keep adding to a loosing position, you are just one step from calamity. Yes it does work at times but it's never a good one. We should know when to cut our losses. I believe this still boils down to having proper risk/reward in place.

LEVERAGE IS A KILLER

Someone once said this, I never fully understood at the time, but I think I do now.

The thing is,

Leverage is a beautiful tool to trade with, but without the proper safety practices in place, even as a professional, you will hurt yourself

The summation of it all is, without proper risk management, we are simply gambling and not trading sensibly. It never ends well most times

Story from coinfesion on twitter https://twitter.com/coinfessions/status/1540696407572480003?s=20&t=I_QtPe__GqMVjZYtTySbcA

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Avatar for Ugomarcel
Written by   14
5 months ago
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Comments

I can relate to this. I've found out myself the hard way that leverage and margin trading sounds and looks good at first glance, maybe even the second glance but once it turns on you, it can clean you out completely!

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5 months ago

That's true bro. That's the more reason why one needs to learn it very well. With proper knowledge one can do quite well.

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5 months ago