My super-tiny leverage trading experiment

' My account got liquidated last week'

This is probably the most written sentence on crypto twitter last week and at least 780.000 account were entirely wiped out. Scary shit right? Everything gone.

When taking a closer look ofcourse the wipe out is never about when people own an asset which goes down in value. All of these wiped out accounts are all in leverage trading, which is the fancy equivalent from gambling with a bit of chart reading in there.

Up until now I have never been interested in leverage trading, mostly because I never really understood how it worked. And as I have been reading into it more last week, this opinion remains the same. This is not something for me and is the like putting your money on red or black at the roulette table, with the slight difference that with a bit of TA knowledge you can get the gist of where the price is knowing, but there are no guarantees.

 

The experiment

 But still, even with not being for me, it is nice to understand how stuff works and also see why it is not for you. Also it is not a bad thing to see how all of these people came so far underwater. So when Kucoin came with this action where you could get $15 futures cash, I thought why not make it an experiment.

Now with $15 bucks of leverage money you have to realize you can exactly nothing. Because when you get liquidated you will be lower than the money you had put in and that is already where the issue starts. Never trade with lended money which you haven't had in your hands as yet.

Now I transferred $20 bucks USDT to my futures account for this experiment, leaving my funds at $35. When you give in your long or short position Kucoin tells you how much funds it will cost you when you get liquidated. For me that would be to stay within that boundaries but for others it seems that that is just a temporary phase because or margin trading (aka lending money), which Kucoin offers you through this nice little foxy, but this is actually selling you soul away.

But put it in a nice image and all of a sudden it isn't so scary anymore. Hmmmmm



 


So I took my position and ignored that fox which wants you to put in all of your funds as leverage and already slit the noose around your neck and waited.

I went for the 10x leverage which means that every 1% the price goes up, you get 10% extra in your account when your sell your position again. That sounds nice right? But there is also a downside to it, and that is....you have guessed it...when the price goes down.

What I initially didn't understand on all of these dudes who lost all of their funds is why they didn't get out before this. But the 10x trading as said also works the other way around. So with 1% decrease in price, your account is 10% under water. And that is the start of a sinking ship which you do not want to leave, waiting for the price to recover.


https://media.giphy.com/media/cTpMKye5hRY3e/giphy.gif


So I got my $35 bucks of BTC and waited how this would work and how it would make me feel. I bought in at the price of $36.597 ( I know nice and high..hmmmm) and it almost immediately went down. And you can see how much you are down in dollar value as well.

What you can also see is the liquidation price, which means when you have your 10% loss which means 100% of your funds is owned to the other party. In my case here this is 33.124 which now seems lightyears far away.

But say.....when you borrowed money using the rest of your account as margin, and you leverage ...and you see the price drop big...and you know you are in debt big time and all you can do is wait until liquidation is right there and you just gambled away all of your funds including everything that was in your wallet?

I am sorry, but that was worth calculating in your risk and your gambled too big. This feels like dudes going to the poker table because they are in debt and going all in because they think they have counted cards. Gambling is no joke, and neither is this leverage trading.

Conclusion

Worst case scenario I lose my $35. That is okay and a calculated risk I would say. But in no time I am 16% in the red, imagine if this was with thousands of bucks. Or with borrowed money. I would feel dramatic.

Honestly, already I feel stupid again because of buying in too ambitiously high. So I will just wait. Either the liquidation or maybe the golden mountains. One way or another, for me this was a one-time experiment.

Update: after making some nice gains and getting the hang of it, 'my account was liquidated' after the pump to 39.5 yesterday. Thanks again Elon. And thank you Kucoin for providing a bit of the heroine for free to make us all an addict ...hmmm
 

This is not finacial advise in any form, but just my experience. Leverage trading, margin trading or whatever. If you don't know what you are doing just stay as far away as you car. This is the formula 1 of trading, while you still have your beginners license. Just don't try it unless you are fully aware that this can make you lose everything.