‘How to Start Margin Trading on Poloniex’ is one of the most requested tutorials, and today we recorded a Workshop Webinar with a live trading example of a Short Position!
Margin Trading Digital Currencies On Poloniex
Teaching How to Margin Trade On Poloniex is a regular part of the LumbridgeCity Digital Currency Investing Course and online Poloniex Tutorial classes.
Our live webinar tutorials are transcribed, edited and expanded below – and have been further improved in our private forums by the questions and comments of all our course members over time.
Soon to be available as a powerpoint slide show in preparation for future correspondence courses.
I’m going to talk about margin trading on Poloniex. This is one of the most requested tutorials that I’ve had from people interested in building wealth within the LumbridgeCity Bitcoin, Altcoin and Digital Currency Trading Community.
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Poloniex Tutorial Webinar Transcript
Good morning and welcome to this morning’s hangout.
First of all, margin trading on Poloniex is a lot more difficult than regular exchange trading because there are more costs involved. Most people treat margin trading as a short-term strategy. If you hit it right, you really can make a lot more money than if just trade on the exchange.
And that’s true. When the timing is correct – there is a right time to borrow money in order to make more money. That’s what this margin trading lets you do. It’s fantastic here on Poloniex because you can margin trade so many different markets.
There are three different sections in Poloniex:
- the exchange section
- the margin trading section and
- the lending area
And you actually have three different wallets inside Poloniex as well; you have
- the exchange wallet
- the margin trading wallet and
- the lending wallet
for each different margin trading currency.
For the purpose of this example, I’m going to use XMR (Monero) as my collateral… but you can use any one of these different currencies as your collateral to fund your margin trading. You just need to move coin into your margin trading wallet, and every currency in that area can be used as collateral for your margin trading.
As an example, I moved my XMR from my exchange wallet over to my margin trading wallet – and now I can do margin trading. I have money in the margin trading area that I can use as collateral for picking up a loan in my margin trading position.
When we go and look at the margin trading markets, there are 11 that we can trade. We can ‘go long’ or we can ‘go short’, using our collateral to take a position.
If we ‘go long’ we are going to make money when the prices go up, and if we ‘go short’, we will make money as the prices go down.
My trading plan is to look for a 1-2-3 bottom formation and ‘go long’ on the breakout of the bottom formation. In these margin trading markets I can also look for the 1-2-3 top formation and ‘go short’ at the break below the top formation and make money as prices go down.
Margin trading makes these markets more volatile because you can get some large short positions really pushing the market down and this causes small traders to sell out of their position and the market goes down even further.
This is very fascinating trading on Poloniex.
But there is something more to note here that is very important:
I don’t think I found it on the Poloniex instructions about margin trading and lending… and this important information is to do with exactly how the lending market works differently with financing for long and short positions the margin trading market.
The lending market works together with the margin trading market.
A margin trader can take up to 2.5 times leverage on Poloniex, which means you’re borrowing money and to take your position.
The other side of the margin trading market, is the lending market – where people put up their coin for traders to borrow and do a margin trade.
- If you’re ‘going long’ in any one of these 11 markets, the system automatically uses bitcoin loans to finance your long position.
- If you’re going short in any one of these markets the system matches you up to the same alternate coin to finance your short position.
For example if you were to ‘go short’ in bitshares, it would use bitshares to finance your short position and you would pay the bitshares lending rates in your short position.
However if you ‘went long’ in bitshares, Poloniex use the bitcoin lending market to finance your long position and so you would pay the bitcoin lending rate to finance your long position.
So when you’re doing your margin trading it’s very important to take a look at the current lending rate for each of the markets you intend to trade.
The bitcoin lending rate right now is 0.0796% and you need to multiply that by 365 days in order to really get a concept of how much interest you are paying here. If you compare that against the interest rates that you normally hear, for example a car loan or a house loan, you’ll hear a percentage interest rate… if you buy an guaranteed interest-rate certificate from the bank or the government, they tell you the percentage interest rate that they pay you annually. Then, each year, you can re-invest that interest, and you can compound your earnings.
This market here is .0796×365 that’s 29% interest, so when you’re ‘going long’ a position in any of these markets right now, and you hold on for a while, you need to realize that you’re paying at a rate of 29% and greater percent interest.
You need to pay attention to the bitcoin interest rate when you’re going into a long position! Take a quick look at the interest rate of bitcoin lending to make sure you’re not paying a murderous interest-rate, which will really make it difficult to be profitable.
So there’s some background… if you’re going to ‘go short’ in Clams, take a look at the interest rate in Clams – and then decide what you’re going to do with your trade.
Now let’s get into actual margin trading.
So you can go to any one of these markets and choose which ones you’re going to trade. Let’s start off looking at Litecoin. The reason I’m choosing Litecoin is because it’s doing a big breakout right now and let’s take a look at it.
I always start my technical analysis with a long-term view of the chart, and then zoom into the one month and zoom-in from there to see what it’s doing at this moment. The killer for me is that I sold out of my Litecoin last night. I sold my Litecoin because it had gone lower, and then today BOOM it does this! So now, I could do a margin trade on this Litecoin market… somebody’s pumping it for some reason… I have no clue why it is going up.
The price has broken out significantly and I could risk money jumping on the train, but it’s not my kind of trade because it’s already broken out.
Let’s take a look now at what we could do with our margin trading I could buy .747 bitcoin value in this trade – either in a ‘long position’ or a ‘short position’.
So I start off with about $137 USD of equity margin trading wallet, and I can do roughly $319 UDS worth of margin trading position.
This way, with margin trading, I can take a bigger step into the market. The thing is, I could actually use my Monero in my margin wallet and use that as collateral to ‘go long’ on additional Monero. Or, I could use margin trading to ‘go short’ on Manero and hedge against a price move… if I’m already holding a great deal of Monero, for just the cost of the Monero lending rate, I can protect that part of my portfolio against a drastic drop in price.
As were going along, I’m looking for your questions. Perhaps things in here are routine for me and I may not realize that I should be explaining them properly, if you ask questions I can build those answers into my presentations, and improve our the future courses! I appreciate any input!
How To Avoid Forced Liquidation
Aside from the background information about how the margin trading leverage works on Poloniex, I guess the next thing you need to know is about the forced liquidation.
And I’m gonna say that even before we talk about the forced liquidation…
If you have read through Rule Number One then you know that it states that we assume we are wrong when we first put on a trade and we are going to reduce or remove our position unless the market proves us correct.
And so you’re going to come up with your trading plan or your trading pattern and you’ll look for that in the market and when you’re trading signal comes along… you are going to use Rule Number One and Rule Number Two. You’re going to assume that you’re wrong when you put that trade on, and you’re going to take that trade off immediately if it does not prove you correct.
So if you’re trading that way your losses will be smaller. You may have more small losses because the market swings around quite a bit, but you’re going to use Rule Number One and you are going to read Rule Number One every six months for the first couple years of your trading and then probably every year thereafter.
You should read and re-read Rule Number One and Rule Number Two every six months and assess how you’re doing with that in your trading.
Just How Powerful Are Rule #1 and Rule #2?
I could not trade Litecoin right now because this is not my signal to begin with, and I would be just throwing a dart into the darkness – hoping I hit the dartboard. This would be like flipping a coin and hoping that it goes higher rather than lower and that’s not speculating that’s just gambling.
However if your trading plan was to flip the coin flip a coin and do what I told you and go along if it told you and go short of a told you and then use Rule Number One and Rule Number Two in your risk control, you would probably be profitable in the long term because Rule Number One and Rule Number Two are so powerful.
I’ll talk about Rule Number One and Rule Number Two all the time as we go through our trading tutorials. For me to do an example trade in margin trading I need to go through each market and look for something that’s making my trading pattern. That’s either a break from atop formation so I can go short, or a breakout of a bottom formation so that I can go along.
Reviewing Margin Traded Markets For An Opportunity
Ethereum is a candidate for going short because it is making a 123 top formation right now, and if it broke down it could go down a good bit from here.
When I zoom into the 24-hour view, we can see a significant break below some support and resistance levels, that is a sell-signal… but is the price going to go down from here? We would use Rule Number One and Rule Number Two if we were trading short in this market.
And as a regular routine, let’s go over and check out the lending rates for ethereum if I was considering a short position… let’s see… the lending rate is 0.0299% right now.
That’s actually 11% interest per year, still really insane interest rates for somebody borrowing, but if you’re lending this is a great interest rate.
As a margin trader, the big price fluctuations gives us an opportunity to make some fantastic returns and so sometimes it’s worth it to take on this lending in order to make bigger returns.
I’m down a bit on my Monero trade but the pattern looks like it might be building up to a big move we see higher lows and lower highs and were consolidating into a triangle formation I’ll hold onto my coin and see what happens with this market.
I have aspirations for MaidSafe Coin to go through the roof – but the prices don’t look like that right now. In fact it looks like it’s going to be coming down from here.
In the 15 minute chart, the prices look like a long lazy decline and lower prices may occur, bit it’s not the kind of top formation that I want to take a short position on.
Looks like it may be a market to go long on it looks like it’s coming into a swing trading range.
I’m sitting on about a half a bitcoin worth of Bitshares and the price pattern is not looking good.
This looks like a short opportunity and how much further could it go down down? …to the 750 level, realistically.
Factum is a market I’ve been watching and thinking of doing a short trade on this one. We can see a 1-2-3 top formation, we can see a head and shoulders top formation, and if we have a break below this level here it’s breaking below three different sized 123 top formations. So let’s go short factum.
Putting On The Margin Trade Position
I’m risking some money to demonstrate margin trading on Poloniex. I’m risking some of my XMR… and I don’t want to lose any! This trade is for example purposes so we can show and demonstrate margin trading on Poloniex. So… I’m going to sell Factum short today.
With the money I have in my margin trading for collateral, I can sell 304 Factum.
And my risk control rules say that I am not allowed to put on my full trade at the beginning; Rule Number Two says that I need to be able to add onto my trade after it successful. This helps to ensure that I am smaller in my trade when I’m wrong and gives me the opportunity to be larger in my trades when I’m correct.
I’m going to ‘go short’ 100 Factum, and the loan rate is 0.0029% right now.
This is a very nice low rate! This means that I can hold this ‘short position’ for a long time at a very cost if it’s profitable and I won’t be paying huge interest on it.
So before the price breaks down lower, I’m going to take on a short position – and, if the market doesn’t prove me correct immediately… I will close my position. Additionally, if the market goes sideways or it’s going up from here then I will get out of my position and take my loss.
Now let’s go back to margin trading and ‘go short’ 100 Factum from here.
If I’m going short then I need to sell my items to the people who are buying them. So I look at the buy orders in the market to determine what is the bid that I must make in order to fill the number of coins that I want to purchase.
Now my margin order is filled and I am short 100 Factum! Now I can look at the price chart to see how much price moved, and I can check my profit and loss from the very start of the trade to see how much the trading fee was.
Monitoring Your Margin Trade Position
Now that I have my short position, I can watch my profit and loss tick by tick as the prices move, and you can see that the unrealized lending fees are expressed in bitcoin but when you go back to the landing area you can see that I have a Factum loan for the 100 Factum at .0028% interest which is about 1% per year!
The people who are lending me this altcoin for this margin trade are not getting paid very well! You can see in my lending area that I have other digital currencies available for lending.
Making Profits From Lending, Margin Trading With Borrowing
You can see what I’m earning in my lending and you can see what my borrowing is costing me;
the lending fees are in green because they are profit,
the borrowing fees are in red because they are a cost.
You can see that I have preparation to lend out some of my other digital currencies at various interest rates so if interest rates do kick up that level, I’m prepared to earn some nice payment from those loans.
So there’s a nice overview of margin trading on Poloniex – with an actual example where we have ‘gone short’ on factum and we are watching for prices to go down for me to make a profit from that trade.
You can see that I was down 320,000s satoshi as a beginning cost of this trade and we can watch this over time. As prices go down on Factum, I will make a profit in this trade.
More Margin Trading on Poloniex
I sold out of my doge coin just the other day and prices have come down since then and I use that money to buy Monero so that so far has turned out to be a good decision.
The chart for Ripple looks like a sell-signal for me. Prices have broken below a 1-2-3 top formation and try to rise again but couldn’t do it – and that is a weakness signal to me.
How much lower would go? If it breaks down below here, it’s hard to say, but this is an area of important support and resistance in the past… but it’s not a clear enough market for me to take a position in ripple at this time
Same with Lumens… I have some Ripple and I have some lumens, and I’m holding onto them for the long-term. But Lumens is showing a top formation. This chart pattern shows that the uptrend was breached when prices dropped below this recent area.
Might be a good idea to sell out of Lumens right now… except it’s pretty much where I bought into it, so I’m holding onto this for the long-term.
I could have used that lower value coin as collateral for my margin trading rather than using the Monero which I really like and want to keep.
Right now I don’t trust Clams either way going up or down so I’m not going to be trading it, but the chart pattern is showing a lower lows so it could be going down is showing lower highs that the trend is down right now… but… it also is in the potential 1-2-3 bottom formation stage, so it’s just not a market I’m going to trade right now.
In review, the Factum market was the clearest in all of these margin trading markets for my trading signal.
Factum is also showing the perfect levels for support right now where this would be the ideal place for the market to get traction and bounce up from here… and I’m sure there are a lot of people who are expecting that right now in the Factum market as well.
To Your Success
End of restricted content for Lumbridgcity Members Only. Thank you for join us.
I hope that was a helpful tutorial on margin trading on Poloniex your questions will make this a better tutorial overtime.
I appreciate your attendance here, I appreciate you watching all the way through, and I would really appreciate to have your feedback! Especially
what did I miss out?
what would you like to see?
what did I not cover?
what do you think would be the single most valuable thing for me to put in this unofficial Poloniex Margin Trading Tutorial to make it the best training and most help for digital currency traders who are just getting started Margin Trading on Poloniex?