This blogpost originally came from people asking me how to set up their trading so that they won’t accidentally overspend and leverage their stock trades. Leveraged trading can move stops SO CLOSE that any tic in the market stops you out losing you what might ultimately be a profitable trade. The system will allow up to five times leverage on stock trading.
The first thing I will suggest is that you use the new platform to trade as there are tools there that will help you manage your positions and keep from accidentally leveraging your trades. When you open the platform, select the Currency Trading Balance window. This window will show you your cash position in each currency in real time. Not the amount you have committed through stock trades in a native currency like dollars, Hong Kong dollars or euro, but it will show you the amount your account holds in bitcoins. It will also show you if you have used Currency Switch or swept unrealised profit held in the native currency of a trade into bitcoins.
There is a risk and a benefit centred around using bitcoin as the base currency but holding positions based on the native currency of the stock, because the relationship of BTC to USD fluctuates. Here’s an example where I’ve used big changes to point out the difference.
If you deposited 1 bitcoin on the platform when they are trading at 1,000 USD to the bitcoin and you use that to buy 10 shares of a stock which is trading $99 USD that would give you a position with a value of $990. If bitcoins then halve in value (let’s hope not!) but your stock position has stayed at $990, you are now leveraging to hold that stock position at about 2:1. This is because you have only $500 worth of (bitcoin) collateral in your account but you are still holding a stock valued at $990.
I’m not suggesting you do this, but you can remove this element of risk by using the Currency Switch Service. Let’s look at the same scenario but if you took your stock position and immediately also traded your bitcoin for $1,000 USD that would lock in the value of your currency and there would be no risk of the currency price fluctuation causing a leveraged condition to exist.
Of course, if you switch your money into USD you also lose the benefit of any appreciation in the value of bitcoins. But remember that the Currency Switch Service can be used to excellent advantage if you want to protect the value of your portfolio because you have a strong opinion bitcoin is in for a price correction.
If bitcoins are trading 1,000 and you buy your 10 shares of $99 stock and you think a news item will cause the bitcoin price to fall, this can present an opportunity. You can keep your $990 worth of stock waiting for the price rise you expect and use Currency Switch to move your bitcoin into USD. If the price of bitcoins went down to 900 and you bought your bitcoin back and then the price rose after your buy back to $1,000 again, you have locked in a profit of $100 plus whatever your stock selection will make. Two bites of the profit apple with the same 1 bitcoin deposit.
Post any other questions you have about the special trading strategies and benefits of using bitcoin as collateral to: [email protected].