How to Trade Bitcoin Using Leverage?

CIOReviewIndia Team | Wednesday, 13 May 2020, 16:32 IST

Bitcoin

If you will ask some of the leading pillars of the trading industry, you will come to know that the secret behind their success is derivatives investment, leveraging, and hedging. Nine out of 10 investors will agree to that. Handling options markets, you can predetermine the end output of your deals. This strategy really helps to predict the out of volatile assets like Cryptocurrencies.

Investment in the cryptocurrency is one of the most complex forms of investment you can ever make. But with the leveraging, you can rest at ease as it will help you to break down your loss (if any) into smaller pieces.

Buying a call option

If you are a buyer and want to buy a bitcoin at a fixed rate on a predetermined date, then you need to give the premium of the bitcoin upfront. This way you can also form a contract with the seller which has a fixed maturity date. This way you as well as the seller will know what will become of this deal in the near future.

There are two ways in which you can gain a profit out of this kind of deal. First, if the price of the call option increases in the near weeks or months, you can sell that to the buyer to gain a profit. And the second way is to wait until the contract expires.

Now you all must be thinking why to pay a premium before making a deal. Well, here is the answer for you. At the time of maturity and the contract expires, if the value of the bitcoin is below the contract price, the buyer can walk away from the deal. This is the reason why this contract is called “Call Option”. To know more you can visit here to sign up.

Benefits of the bitcoins on future contracts

The reason why most of the investors choose the “call option” contract is that by doing so they have an idea of how much they can accrue a loss. In Addition, they don’t even have to worry about their position as a buyer to be closed.

Let say, for instance, there is an investor who has $500 as capital investment. And he wants that the value of bitcoin increases substantially for the next few months. Here the investor can use future contracts to boost the position of the bitcoin values. By doing so, you can boost the values of the bitcoin by 20 times or even more.

However, there is a risk with the call option strategy. Suppose instead of the market going forward, market drops by 1% then the position you are holding will forcibly liquified. Even if the drop is for a moment, there is no second chances for the option holder.

Buying a protective put option

Investment in the cryptocurrencies means you are taking high risk, and by adding the call option contract, you put yourself in a handicapped position. To make sure that you come out with the cryptocurrency deals “Put Option” seems reliable.

So what actually “Put Option” is? Basically, the put option means that you're agreeing with the buyer or seller to buy or sell the bitcoin at a price that you two have agreed previously in the future date. In this contract as well, the buyer pay the premium of the value of the bitcoin upfront.

Conclusion

In conclusion, you can say that the “call option” has more upside than the “put option”. And unlike put option where you are bound to have a limited profit, the call option will surely help you have more profit than you ever expected.

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