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What is leveraging and why you should avoid it

I got into “mining” USDT in Stormgain [referral link included] a few months ago and have started to receive some of the USDT into my account. Well actually it is not “mining” per say but more like generating USDT. Basically you just click a button once every few hours and they will give you some USDT. It is a small amount but at least you are selling the actual value of what you are getting since it is actual USDT. But with those mined or minted USDT, you cannot withdraw from the account. You can only trade with it. Only the profits from these trades you can then withdraw. Well it is kind of like free money and I guess it is meant for incentivize their users into trading on the Stormgain platform. The problem is that you cannot trade as per normal, you can only leverage. This makes sense because you are not really getting a lot of USDT from the mining and even if you are the best trader, what is 30 USDT going to get you when you are trading? Not much right? So here we are – leverage trading.

It is actually a pretty simple concept behind leveraging. What happens when you leverage -whatever amount you leverage in, you will get multiples of which you can use for trading. So lets say for example you have only 20 USDT (just like what I had) and you are able to leverage x5 in a trading platform. So what you actually get is 20 x 5 which is 100 USDT to trade. This might sound great if everything is all rosy and whatever you are leveraging in is going to the moon but just imagine if things go south. Again a reminder that with just 20 USDT, you are now a player trading with 100 USDT. And when things go south, all that is needed is a small drop in the stock or cryptocurrency you are trading to get you liquidated. So in our case, that means a 20 dollar (or slightly less) drop will get you liquidated. And yes, these exchanges and trading platforms will liquidate you without a second thought. That is how most exchanges make their money. And this means all the funds you put in will be taken by the platform. In this example, you lose the entirety of the 20 USDT you initially put in. This is unlike other regular trading where even if the cryptocurrency price or stock price tanks, you are still holding the same amount(number) of cryptocurrency or stock, even if it possibly becomes worthless.

But so why is this bad for the market, especially one so volatile as the cryptomarket? Well that is because retail investors who leverages don’t want to get liquidated. Liquidated means you get nothing back – zero, zilch, cero, blank, 0….. Just imagine those traders with 100x leverages. A small retraction of the price will result in quite a significant amount of losses. Hence you will often see crazy price dumps as leverage traders tries to sell off whatever crypto they have to save themselves. And that is why I keep stressing to my readers never to leverage. Only invest what you can afford to lose. Of course as Stormgain do not allow me to do normal spot trading, so I will just trying leveraging for fun. And it is a small amount indeed. I do not encourage anyone to do leveraging. I will nevertheless keep you guys updated on this little fun experiment. Wish me luck. But I am pretty sure I will get rekted in the process.

By Admin

Someone who is very keen on small scale investments like crypto, mining and other investments. For the common folk!

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