Cryptocurrencies are a form of wealth, similar to gold and fiat currency. And holding them has worked out well for a lot of investors.
But managing cryptocurrencies is challenging. Many holders actually lose money.
That’s where this post comes in. It looks at some of the ways the pros are leveraging their accounts for even more gains.
Using Moderate Leverage ratios
Leveraging crypto is now possible thanks to the way some markets work. However, it also comes with risks.
Back in the day, a lot of pros would ratchet up to 10x or 20x leverage. The problem with this approach was the decay and the catastrophic losses that occurred the moment there was a bear market.
These days, the leverage ratios are closer to 2x to 5x, which is ideal for $5,000 positions. Losses can be managed and gains can be large if there’s evidence of an upswing.
Using Stop-Losses
Another approach we’re seeing the pros use is stop-losses and take-profit orders. These allow them to bound their risk ahead of time instead of holding on for dear life.
The idea here is to limit the downside and, counterintuitively, the upside. The reason crypto investors are doing this is because they want their bets to reflect their perceived risk levels over time. They are aware of the problem of fear in a market like Bitcoin, but also issues to do with irrational exuberance and bubble dynamics.
Stop losses are therefore effective because they protect against sudden market losses and secure profits without continual monitoring. And take-profits are also great for investors who have a tendency to get greedy and continue riding the market higher when it is clear that it has run out of steam.
Diversifying Across Assets
Another tactic being used by the pros is to diversify across crypto assets. Many have holdings in Bitcoin, Ethereum and various stablecoins that track fiat currencies. They hope that this spreading of wealth will reduce overall risk while maximizing their returns.
Diversification in the crypto space has been effective for a long time because of the tendency of individual assets to collapse. Many coins can lose value quickly, but it is rare for that to happen across the board. Sometimes one coin, like Doge, will go down, while another, like XRP will rise. These tend to offset each other, keeping the amount of money in an investment account roughly the same over time.
If you are still worried about risk, you can use isolated margin trading. This cuts down your exposure to specific trades and prevents your entire account from being drained.
Betting
Another way crypto investors are leveraging their coins is through betting on sites like Stake. They’re finding bonus opportunities and using them to ratchet up their likelihood of winning with better probabilities.
Normally, most betting sites require cash. But crypto-based options change the dynamic and allow for bigger wins going forward. This strategy can sometimes result in a lot of money quickly, similar to leveraged trading.
Scalping For Small Gains
Another approach is to use scalping. The idea here is to trade multiple times a day to take advantage of small movements in the underlying price.
Scalping, of course, doesn’t always work, and comes with risks, like day trading. But it can be highly effective in some situations where the investor has more of an understanding of the underlying price dynamics.
The best way to scalp is to watch for small movements in the price and then place a leveraged trade. For example, suppose you expect the price to rise by 0.5% on the day. Using a 10x leverage instrument could see a return of 5%.
As with all leveraged approaches, the risks can be enormous. But anyone with a slight advantage over the market can expect solid returns, especially if they get the level of risk right in the market.
Scalping works quite well in crypto markets because of the sheer volatility of many of the coins. Short- and long-term exposure can induce market risks, but these can be reduced by knowing when price spikes are happening.
The best way to make scalping work is to use the fastest and most reliable platforms. Often, you need to be in and out quickly to properly facilitate the trade.
Leveraging Trading Bots
The next level is to simply use trading bots. These can automate much of the process based on specific algorithms, allowing for more complex trading without human error.
Bots aren’t perfect and despite their training, they don’t have a detailed understanding of the market. However, they are good at processing a significant amount of information to find opportunities that might be missed.
Bots also take away the burden of having to make decisions about when to buy and sell all the time. Many can operate in the crypto market around the clock, so there’s less risk of missing an obvious trade.
The only challenge is to ensure these bots use strategies that make sense to investors. It’s often worth playing with demo accounts first before launching the bot and telling it to deal with the market. Backtesting is also a good idea, although the bot’s model may be overfitted and less likely to work with new data.
Shorting Price Drops
Finally, a lot of pros are leveraging crypto to short sell on price drops. Making money on the way down in crypto markets is often even more fun than making it on the way up.
These days, you can also attach leverage to short bets. This leverage increases the gains from declines substantially (but do the opposite if the price rises again).
Short selling makes sense if you think the market will become bearish soon. If there’s any leading indicator or model you rely on that seems to indicate a crash, it might be worth considering. Markets like bitcoin already behave like leveraged funds, due to their tremendous volatility over time.
So there you have it: how the pros are using crypto for even more gains.
