Post
Topic
Board Economics
Re: Bitcoin trading strategy
by
ilyasilyaso
on 06/06/2015, 13:17:55 UTC
There are two techniques commonly used by day traders to increase their profits from market movements. Leverage, or margin trading, means borrowing money on a short-term basis to speculate on the price of bitcoin. The loan is paid back when you exit the position. For example:

The price of bitcoin is $500. You borrow $5,000 to buy 10 bitcoins.
The price of bitcoin rises to $550. You sell your 10 bitcoins for a total of $5,500.
You pay back the loan of $5,000, plus interest (say, $50).
Profit: $450, on a price movement of $50.
Of course, you can also lose a lot of money this way: if the price goes down instead of up, you will lose ten times the price movement. This is what makes margin trading so risky – it is potentially extremely profitable, but can also be very costly.