Spot trading (Basic)
Spot trading is a simple transaction between a buyer and a seller to carry out a transaction at the current market price, also called the spot price. The trade takes place immediately when the order is executed.
Users can prepare spot trades in advance to activate the transaction when a specific spot price is reached. This is called a limit order. It is also possible to buy directly at the best possible price right now, so-called market price. It is done by executing a market order, the market order is executed immediately.
Spot trading offers an easy way to invest and trade. In crypto investing, your first experience will likely be a spot transaction in the spot market.
When trading in spot markets, you can only use assets that you own – there is no leverage, using borrowed capital to buy for more.
Spot markets exist for trading stocks, commodities, currencies and bonds. If you are a beginner in cryptocurrency, you may be more familiar with spot markets and spot trading than you think – stock markets, such as NASDAQ and the New York Stock Exchange are e.g. spot markets.
Leverage trading (Advanced)
In crypto trading, leveraged trading means the use of borrowed money when buying cryptocurrency. Leveraging can increase your buying or selling power, allowing you to trade with larger amounts than you own, but it also increases the risks. If you have little capital to trade with, you can use it as collateral and thus increase your capital to trade with by trading with borrowed amount. Although leveraged trading can multiply your potential profits, it is also associated with high risk. It is especially important to be careful when using leverage when trading cryptocurrency. It can lead to significant losses if the market moves away from your position. In order not to risk being liquidated, it is important, a basic rule for all beginners and most experienced people, to set stop-loss limits when trading. I.e. you set sell/buy limits that are triggered automatically when the cryptocurrency rate crosses the limits. Then you already know the time for action, but pretty good performance, how much you can lose at most, even if the market goes in the other direction you initially thought. In the same way, you can already at the start of the deal (the time of purchase) decide at what price you are willing to sell.
“INSERT EXAMPLE GRAPH HERE”
Risk/reward ratio In Swedish, this is reward-for-risk ratio, and is calculated as upside in relation to downside, i.e. return on a successful investment (sale at target price) in relation to return on a failed investment (sale at stop loss).
Risk management strategies such as Stop Loss limit (stop loss order) and Take Profit (take profit order) help minimize losses in leveraged trading. You can use stop-loss orders to automatically close your position at a specific price, which is very helpful when the market moves against you. Stop Loss can protect you from big losses. Take profit orders are the opposite – they are automatically closed when your profits reach a certain value. This allows you to secure your income before the market turns.
Leverage trading can be confusing, especially for beginners. But before you experiment with leverage, it’s important to understand what it is and how it works.
The amount of leverage is described as a ratio, for example 1:2 (2x), 1:10 (10x) or 1:20 (20x). It shows how many times your starting capital is multiplied. For example, imagine you have $100 in your crypto account, but want to open a position worth $1,000 in bitcoin (BTC). With 10x leverage, your $100 will have the same buying power as $1,000.
Why should you use leverage to trade crypto?
As mentioned earlier, traders use leverage to increase their position size and potential profits. But leveraged trading can also lead to much larger losses, as illustrated by the examples above.
Another reason for traders to use leverage is to improve the liquidity of their capital. For example, instead of having 2x leverage on a single exchange, they can use 4x leverage to maintain the same position size with lower hedging. This would allow them to use the other part of their money elsewhere (for example, to trade another asset.
Manage the risks of leveraged trading
Risk management strategies such as stop loss and take profit orders help minimize losses in leveraged trading. You can use stop loss orders to automatically close your position at a specific price, which is very helpful when the market moves against you. Stop loss orders can protect you from large losses. Take profit orders are the opposite – they are automatically closed when your profits reach a certain value. This allows you to secure your income before the market turns.
High leverage trading may require less capital to begin with, but it increases the risks of liquidation. If your leverage is too high, a price movement of just 1% can lead to huge losses. The higher the leverage, the lower your volatility tolerance. Using lower leverage gives you more margin for error to trade with and less risk. A basic rule is that over 10 x leverage is “pure gambling”. As a beginner, start with 2-5 x livergage and very low stakes. There are some important settings that you should always make when starting a trade.
Do a thorough analysis before taking a trade. Analyze, trend direction, possible scenarios, think about the time perspective, how long do you think it will take before you reach the goal of the trade.
Use low leverage 2-5 x (recommended). The higher the leverage, the greater the risk.
Start with small minimal stakes that you are “willing” to lose as “tuition”. Use a very small portion of your total portfolio as a bet.
When threading with leverage, you can choose between Cross and Isolated. Always select Isolated. When you use Cross, you can liquidate capital that is outside the trade you are currently executing. Read on and understand the difference between Cross and Isolated.
Always set stop-loss and take profit and calculate what you can lose/win (risk/reward).
Example trade with leverage
Most exchanges Binance, Kucoin, Bybit, Bitget have almost identical ways of trading with leverage, so if you understand the principle on one trading site, there is usually no difficulty in understanding how they work on the other trading sites.
In this example, suppose you have $100 to trade for on the Kucoin trading platform. You think you have a good trading opportunity and in this In this case you want to buy 5 times the amount you are trading (i.e. 5 x leverage). You will thus borrow Cryptocurrency to be able to buy Cryptocurrency for 500 dollars.
1.) Decide in which direction you think your course will go)
2.) Transfer 100 USDT to your
2.) Calculate your Risk Reward based on the limit, the value where you intend to take profit in relation to your Stop Loss value.
3.) Decide what leverage you want to use, in this case 5 x You now have 500 USDT
4.) Place a Market Order Long if, as in this case, you think the price is going up. Short, you use the opposite if you think the price is going down.
5.) Set Stop Loss and Take Profit limits.
Once you have completed the following 5 steps, you can actually relax and stop watching the courses “every minute”. You can let the trade run automatically and then check periodically to see if it has finished. It is possible to close a trade at any time, but as a basic rule it is better to let the trade complete automatically, by reaching its target. You avoid panic-selling when you get emotional if the rate might suddenly move. As a trader, you want to avoid getting emotional as much as possible during the time you are inside a trade.
If you use Kucoin’s mobile app, complete the following steps to execute a leveraged trade.
Press the Assets button, picture will come later
Press Transfer, picture will come later
Transfer 100 USDT to Futures Account
Check your Risk/Reward so you don’t risk too much, picture will come later
Set your leverage. In this case, we think 5 x is adequate
Place a market order, it will be executed instantly.
Now is the time to set Stop Loss and Take Profit limits. I.e. limits for when your trade is closed, either your trade is closed with a loss, it occurs when the rate crosses the Stop Loss limit or your trade is closed with a profit when the rate crosses the Take Profit limit.