At one point the trading balance $100 in BTC was down to $30 then up to $120 and eventually ZERO, all within Seven hours.
Trading is easy. You try to buy an asset at a price and then wait for the price to go up and sell it. That’s the expectation. There is a possibility that the price will tank instead of going up and you stand to lose money. Simple enough.
Combine this minimalistic looking activity with some extra boost like when you put in $100 you get $10000 to trade and we have recipe for disaster. The complications that I am talking about are known to humankind by Derivative trading, Margin, Leverage trading, and many more names. Trading is easy, if the goal is to quickly lose money.
But, a lot of people make a living off of trading different kinds of products. Some trade Stocks, some Commodities, some Currencies, some Crypto assets, and some do everything. An experienced trader would wow you with phrases like, “Oh but the charts were very clear” or “You know the global pandemic is a disaster for stocks but you can always bank of commodities like oil”, pun intended.
Jokes apart, trading anything really requires time, study, experience and a lot of discipline. If you lack any of it, you’re just gambling with your money, hoping to hit a jackpot.
I am a gambler when it comes to trading. I have lost more money trading than I have spent traveling in the last two years. So I decided to take help of a professional, someone with years of experience. As it turns out, I gambled with my money there as well.
Setting up the Challenge
I know many good Crypto traders, who make thousands if not lakhs in a day from just trading cryptocurrencies. I contacted one and said, why don’t I give you $100 worth of BTC and you take up the challenge to make it $1000. No conditions, if they lose the money, I don’t ask for it back. One person agreed. We shook on it and I transferred the BTC.
I made a plan, I would talk to this trader everyday, understand where we are, and finally write an article on it, giving daily updates. The challenge was to take it to 10x profit and we have seen a lot of people be able to do that. I wanted my readers to know what it takes.
The stage was set, the account was balanced, and the trader began the work to make my money increase 10 folds.
The Roller Coaster Came Crashing Down
I was a bit nervous because my trader friend had told me there is no intention to lose my money, but it is possible “that it goes bust in the first trade itself”. Now, if I am being honest, this worried me a lot. Because if it was me, I’d never take such high risk. I knew that my friend wouldn’t do that either if it was a huge amount. Despite my heart aching, I tried very hard to not intervene in the process.
It was their challenge not mine, so I decided to try and keep myself away.
The next message was “Longed”, which translates to my trader friend had taken 100x leverage to buy BTC expecting the price of Bitcoin to go up. I on the other hand was praying it goes up.
In four minutes, I got a message “Flipped it”, which translates to, the trader closed the long position and opened one shorting BTC, expecting the BTC price to go down.
In another eight minutes the portfolio was down 60%.
Although I never wanted to intervene and all of this happened so fast, I just vaguely talked about the risk that the trader would take if it was $1000. The answer was about 30-35x leverage. Why 100x with this money then, I asked?
Smaller amounts are not as important for those who trade in larger amounts regualrly, I suppose! The dynamics are different, my trader friend said.
After this I honestly felt that I had lost the investment and we simply chatted about other things before going back to work.
Four hours later, I got a text, “So, BTC pumped”. The position was up 20%. We had just gone down to $33 from $100 and back upto $120. I was quite happy.
Two more hours later the words “REKT” stared at me in the telegram chat window. $100 investment was now down to ZERO.
Why did an Experienced Trader Lose $100 in few hours?
My hopes and dreams to make a series of articles on traders who can turn a 10x profit were shattered. I sat devastated. I had lost my faith from trading and traders altogether. While the amount is not huge in the grand scheme of things, but it did hurt to know that my entire plans around it were bust in just a few hours. Nevertheless, as with every article, the ultimate goal to educate my readers and there are many lessons in this story.
The trader and I spoke for a while on the phone to understand what had just happened and why it happened and there are three key takeaways from it.
1. Large Capital
$100 was too small an amount for the trader to take seriously. Whether you trade or not, if $100 is insignificant or less than 1% of your annual income, you wouldn’t really care about it if the potential reward was 10x.
A large capital keeps a trader in check, but a small capital is simply not incentivising enough to spend the same amount of time one would spend on a large capital. Hence my trader sped things up by taking 100x leverage.
2x of $100 in one week is $200, 2x of $1000 in one week is $2000 and making $100 from $1000 is a lot easier than making $100 from $100.
2. Risk Management
The trader cites Risk Management as a very important aspect of trading. For something that is close to 0.01 BTC at the current BTC price, it was easy to take the risk of 100x leverage, because the loss was limited to something one can afford.
For $1000, $1000 or One BTC, the risk management is significantly tighter.
If your total affordable loss is $300, then an opening balance of $100 is not significant. However, if your opening balance is $1000, then you manage the risk so you don’t lose more than $300 – your limit.
3. Trading System
All traders have their own systems that help them take calls. These systems are built with rigorous back testing and years of experience. According to the trader, dynamics built within the system are set for a specific range capital and risk.
Hence it becomes difficult to apply the same dynamics on smaller amounts.
We further discussed these are also the reasons why sometimes even though the trading signals from groups and traders are very on point, a user who tries to follow them won’t make enough profit or get rekt.
Better to have your own system
I am a simple man who likes to experiment and write about such experiences. For me $100 is an investment to write this article. I can argue it is particularly expensive but if any derivatives exchange is willing to put their name in this article, it will be $100, thank you very much.
My experience is not enough to know if my trader friend was right or wrong. But this incident taught me to take a step back and learn trading myself instead of hoping for someone else to make me rich. Why should I expect anyone to make me rich, it seldom works.
It also taught me how trading could be the rich folks’ game while only a few from us plebs can really turn a decent profit. There is a reason for it. We start with a small amount, but then we go on social media, talk to our friends and see them making thousands of dollars, and so we begin to take greater risks. And we fail miserably.
My trader friend has been able to turn 10x, 20x profit with a large initial capital but got rekt with small amount. I learnt that small amounts are not going to get serious traders be serious about trading with it.
My next experiment would be to find someone who is learning to trade in Bitcoin and give that person $100 to see what comes out. But I am not sure if I am ready to invest another $100 yet. There is a high probability that this trader will take higher risks too, because they have nothing to lose.
But ultimately it’s a risk as Peter Brandt would say “both profits and losses are part of trading.”
Personally, I think anyone wanting to make dough from trading, needs to learn themselves, to trade and to be patient.
Would you give your money to an experienced trader to trade on your behalf? Let us know in the comments below
P.S. - Yes we know what Hedge funds and investment funds are!
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