Position Sizing: The Key to Crypto Trading Success

Nov 23, 2023

The cryptocurrency trading market is one of the most volatile financial markets in the world. Prices can fluctuate wildly from one moment to the next, making it a risky place to trade. However, this volatility also creates opportunities for profits.

One way to make more profits in the cryptocurrency market is to add funds to the margin. 

This can be a good strategy for traders confident in their analysis and willing to take on more risk. Furthermore, this feature is now available on YouHodler’s MultiHODL. The feature is called “Increase Position” and currently is in the beta test mode. More on that later. First, an introduction to position sizing. 

Why is there an option to increase trading position size?

Cryptocurrency exchanges offer the option to increase trading position size because it allows traders to make more profits when the market moves in their favor. It also allows traders to hedge their positions more effectively if the market doesn’t move in their favor. 

For example, if a trader believes that Bitcoin is going to go up in price, they can buy more Bitcoin than they would if they were just trading with a small position size - or if just buying Bitcoin with cash. Hence, this allows them to make a bigger profit if Bitcoin's price goes up thanks to the additional margin 

Traders can also use position sizing to hedge their positions. For example, if a trader has a long position on Bitcoin, they can sell a small amount of Bitcoin short to reduce their risk. This will help to protect their profits if Bitcoin's price goes down.

Benefits of increasing trading position size

The main benefits of increasing trading position size on a margin trade are as follows:

1. Potential for higher profits

When you increase your position size, you can make more profits if the market moves in your favor. Even if the market doesn’t move in your favor, adding more funds to your margin means your deal has a higher chance of surviving significant volatility. 

Other benefits of increasing your position size when margin trading include:

  • Greater flexibility: With a larger position size, you have more flexibility to manage your risk and take advantage of market opportunities. For example, you may be able to place larger orders without affecting the market price, or you may be able to use more complex trading strategies.

  • Increased buying power: A larger position size gives you more buying power, which can be useful if you are trading in a volatile market.

  • Reduced slippage: Slippage is the difference between the price you expect to get for an asset and the price you get. Slippage is more likely to occur when you are trading large orders, but it can be reduced by increasing your position size.

  • Increased liquidity: Liquidity is the ease with which you can buy or sell an asset. A larger position size can make it easier to enter and exit trades, especially in illiquid markets.

2. More efficient hedging

Increasing your position size can make it easier to hedge your positions and reduce your risk for the following reasons:

  • More capital to deploy: With a larger position size, you have more capital to deploy in hedging strategies. This can help you to offset losses in your main positions, even if the moves are larger than anticipated.

  • More flexibility: A larger position size gives you more flexibility in how you hedge. For example, you may be able to hedge with more complex strategies, or you may be able to hedge against a wider range of risks.

Risks of increasing trading position size

It is important to note that there are also risks associated with increasing trading position size. These risks include:

  • Increased losses: If the market moves against you, you will lose more money if you have a large position size.

  • Margin calls: If you are trading on margin, you may receive a margin call if your account balance falls below a certain level. This can force you to sell your cryptocurrency at a loss.

  • Reduced liquidity: It can be more difficult to exit your trades quickly if you have a large position size. This is especially true in volatile markets like the cryptocurrency market.

Thankfully, YouHodler has plenty of risk management tools available to ensure traders have some protection in high-risk markets. 

Can you increase the trading position size on YouHodler?

Yes! YouHodler just released a new feature that allows crypto traders to do just that. While the feature is still in its beta-testing stage, traders will be happy to know they can increase their trading position size on all active MultiHODL positions. The feature is called “Increase Position” and it will allow crypto traders to enjoy all the benefits explained above in this article. 

How “Increase Position” works on MultiHODL

To increase your active MultiHODL position, follow these steps:

  1. Click/tap the MultiHODL position you want to add more funds to and click the “Increase Position” button.
  1. On the next screen, enter the amount of funds you want to add to your active MultiHODL. Take note of how the position changes with the added funds. 
  1. Check all parameters and click the “Increase” button
  2. Congratulations! You increased the total volume of your active MultiHODL

3 tips on how to use position sizing effectively on YouHodler

If you are considering increasing your MultiHODL trading position size, it is important to do so carefully. Here are a few tips:

  • Start small: Don't start by increasing your position size to the maximum. Start with a small increase and gradually increase your position size as you gain experience.

  • Use a risk management system: A risk management system will help you to control your losses and protect your capital.

PRO TIP! Use Take Profit and Stop Loss on Multi HODL to bolster your risk management strategy

  • Trade with capital that you can afford to lose: Only trade with money that you can afford to lose. This will help to reduce your stress and anxiety when trading.

Position sizing: the key to crypto trading success (conclusion)

Hopefully, you now understand that increasing your trading position size can be a great way to make adjustments and potentially earn more profits while trading in the cryptocurrency market. However, please remember that there are always risks involved in trading - especially with the highly volatile cryptocurrencies. 

Before experimenting with position sizing, remember these tips:

  • Consider your risk tolerance: How much money are you willing to lose on a single trade? Your risk tolerance should determine how much you increase your position size.

  • Use leverage carefully: Leverage can amplify your profits, but it can also amplify your losses. Use leverage with caution, especially if you are new to trading.

  • Diversify your portfolio: Don't put all your eggs in one basket. Diversify your portfolio by trading a variety of different cryptocurrencies.

By following these tips, you can use position sizing to your advantage and increase your chances of success in the cryptocurrency market.

Disclaimer: The content should not be construed as investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. It is made available to you for information and/or education purposes only.

You should take independent investment advice from a professional in connection with, or independently research and verify any information that you find in the article and wish to rely upon.

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