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Abstract

itial debt.There are two types of bets. You can do long leverages or short selling.As the name suggests when you long, you are betting the price to go up. To put it simply, say you have 100 dollars to invest. To go long, you could put that money as collateral and can then borrow, $1K cash for instance to play with. Then if the price goes towards the north of$ 2K, you could sell it, return the initial 1K loan and enjoy the profits.In contrast, when you short, you are betting the price to go down. This one is a little tricky to wrap our heads around at first. Let’s assume a coin is worth 1.33 dollars today and you expect the price to go down. By shorting you are basically borrowing coins from a broker and selling them immediately for cash. Now, once the coin’s price drops to 1 dollar you can buy more coins from the same amount of cash or just close positions to make a quick buck.In other words, for longs, you borrow cash to buy low and sell high whereas for shorts you borrow coins to sell high and buy back lower. For cryptocurrency, USDT is typically seen as cash. So longs borrow cash to buy BTC and altcoins while short-sellers borrow BTC and sell it for cash.Of course, if things move the opposite way your losses compound too, which could soon trigger a margin call ( it’s a case where your position falls to a certain level such that the broker doesn’t trust you can repay and they liquidate all your assets).<h1 id="9282">How I lost my bitcoin assets in my first ever margin trade</h1>Alright, in case you’re wondering whether I was margin called, let me clarify: I wasn’t.For the uninitiated, Binance the largest cryptocurrency exchange offers a few kinds of margin trades. Primarily, there’s a <a href="https://www.binance.com/en/support/articles/b4e9e6ad70934bd082e8e09e33e69513">cross margin</a> where you can transfer multiple cryptocurrency coins and share the margin loan across them. And then there’s an isolated margin. This one is restricted to one trading pair.I transferred all my coins into cross margin because it reduces the chances of liquidation. Observing the sentiments around me, with people fearing a Bitcoin retreat to $25K, I started shorting the coin — at 35K.Soon it dropped to$ 33K and below. Being ecstatic about the idea of accumulating more Bitcoin assets as it goes lower I shorted more — in other words, bo

Options

rrowed and sold them for cash. In another world though, I saw Etherum and alt-coins getting dumped even harder than BTC and decided to go long on them — borrow more coins.If you’re a veteran at margin trading, you’d know how my trade’s endgame will pan out. But, if you’re a noob like me, then hear me out.In a cross-margin, when you short sell a coin, the exchanges first sell your available balance before letting you borrow more on margin. I didn’t know this at that time.Worse, when I longed the altcoins, I consumed the margin cash I’d received from the Bitcoin short. So, when the price plunged down to $31K, I had no USDT cash in my margin account to buy back the BTC assets.With most exchanges in my country halting bank deposits in recent times, the only thing I could’ve done is either long Bitcoin at its$ 31K price (with a potential risk of it going further down and causing liquidation scenarios) or let it pass.I chose the latter and in doing so lost all my Bitcoins. Today, the price is back above 38K, with my short and long positions still open.Though it’s not as dark and gloomy as it might seem. In a way, I just accidentally sold off my Bitcoins and rotated that cash into the altcoins. And I learned a valuable lesson to not long and short randomly together. However, this came at the cost of losing my BTC assets, the biggest and most secure digital currency.So, even if you do plan to go long and short on cross-margins, always put your collateral on a limit sell (say BTC limit order at 100K) and then proceed to short. This borrows against the coins as collateral but does not sell them. In this way, you won’t risk losing out on your original asset investments.<h1 id="e69b">Conclusion</h1>In the end, I could’ve simply ignored margin trading, held my Bitcoins, and been debt-free. Instead, I got too greedy in buying the dip using leverage and it got the better of me.I hope my story shines the light on the pitfalls of margin trading and the magnitude of risk it brings to your portfolio. It’s cliche, but we are our own biggest enemy in investment.This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.</article></body>

I Sold Off All My Bitcoins At $31k, Accidentally

My first attempt at margin trading backfired due to a dumb mistake. And the timing couldn’t be worse

Bitcoin has been on a rollercoaster ride lately. After moving sideways for months, investors are now witnessing the extreme volatility that the world’s largest cryptocurrency is renowned for.

The value has plunged from $65K to less than $30K in about a month’s time and still continues to experience some wild swings.

It won’t be an overstatement to say that Tesla and Musk’s love-hate relationship with Bitcoin, the possibility of China’s crackdown on mining, and the Biden administration's uncertainty around capital gains tax are the primary reasons for the looming fear amongst crypto investors.

A bit about me — I started passively investing in cryptocurrency once again at the beginning of this year. Things had been relatively great for me and I always plan to “hodl” Bitcoin and Ethereum forever.

Yet, when Bitcoin had plunged to the lows of $31K in the weekend gone by, I sold off all my Bitcoin assets.

Nope, I didn’t panic sell. Neither did I lose my wallet’s seed phrase key.

This is a story about a newbie’s margin trading going wrong, but it’s also a story we refrain from sharing with each other. The story of greed, emotion, and how it forces us into a never-ending loop of gambling.

Before I talk about how I lost my Bitcoin assets in margin trading, let’s get a few margin trading key terms such as longs and shorts out of our way.

What the heck is margin trading? Longs and shorts?

Margin trading is when you borrow coins or cash from your broker and bet on it to go up or down. Most exchanges today offer leverages starting from 2x, 3x till 100x. This means by pledging your coins or cash, you can increase your buying power, make trades at a nominal interest rate, earn a profit, and finally return the initial debt.

There are two types of bets. You can do long leverages or short selling.

As the name suggests when you long, you are betting the price to go up. To put it simply, say you have 100 dollars to invest. To go long, you could put that money as collateral and can then borrow, $1K cash for instance to play with. Then if the price goes towards the north of $2K, you could sell it, return the initial 1K loan and enjoy the profits.

In contrast, when you short, you are betting the price to go down. This one is a little tricky to wrap our heads around at first. Let’s assume a coin is worth 1.33 dollars today and you expect the price to go down. By shorting you are basically borrowing coins from a broker and selling them immediately for cash. Now, once the coin’s price drops to 1 dollar you can buy more coins from the same amount of cash or just close positions to make a quick buck.

In other words, for longs, you borrow cash to buy low and sell high whereas for shorts you borrow coins to sell high and buy back lower. For cryptocurrency, USDT is typically seen as cash. So longs borrow cash to buy BTC and altcoins while short-sellers borrow BTC and sell it for cash.

Of course, if things move the opposite way your losses compound too, which could soon trigger a margin call ( it’s a case where your position falls to a certain level such that the broker doesn’t trust you can repay and they liquidate all your assets).

How I lost my bitcoin assets in my first ever margin trade

Alright, in case you’re wondering whether I was margin called, let me clarify: I wasn’t.

For the uninitiated, Binance the largest cryptocurrency exchange offers a few kinds of margin trades. Primarily, there’s a cross margin where you can transfer multiple cryptocurrency coins and share the margin loan across them. And then there’s an isolated margin. This one is restricted to one trading pair.

I transferred all my coins into cross margin because it reduces the chances of liquidation. Observing the sentiments around me, with people fearing a Bitcoin retreat to $25K, I started shorting the coin — at 35K.

Soon it dropped to $33K and below. Being ecstatic about the idea of accumulating more Bitcoin assets as it goes lower I shorted more — in other words, borrowed and sold them for cash. In another world though, I saw Etherum and alt-coins getting dumped even harder than BTC and decided to go long on them — borrow more coins.

If you’re a veteran at margin trading, you’d know how my trade’s endgame will pan out. But, if you’re a noob like me, then hear me out.

In a cross-margin, when you short sell a coin, the exchanges first sell your available balance before letting you borrow more on margin. I didn’t know this at that time.

Worse, when I longed the altcoins, I consumed the margin cash I’d received from the Bitcoin short. So, when the price plunged down to $31K, I had no USDT cash in my margin account to buy back the BTC assets.

With most exchanges in my country halting bank deposits in recent times, the only thing I could’ve done is either long Bitcoin at its $31K price (with a potential risk of it going further down and causing liquidation scenarios) or let it pass.

I chose the latter and in doing so lost all my Bitcoins. Today, the price is back above 38K, with my short and long positions still open.

Though it’s not as dark and gloomy as it might seem. In a way, I just accidentally sold off my Bitcoins and rotated that cash into the altcoins. And I learned a valuable lesson to not long and short randomly together. However, this came at the cost of losing my BTC assets, the biggest and most secure digital currency.

So, even if you do plan to go long and short on cross-margins, always put your collateral on a limit sell (say BTC limit order at 100K) and then proceed to short. This borrows against the coins as collateral but does not sell them. In this way, you won’t risk losing out on your original asset investments.

Conclusion

In the end, I could’ve simply ignored margin trading, held my Bitcoins, and been debt-free. Instead, I got too greedy in buying the dip using leverage and it got the better of me.

I hope my story shines the light on the pitfalls of margin trading and the magnitude of risk it brings to your portfolio. It’s cliche, but we are our own biggest enemy in investment.

This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.