Is Bitcoin FX a gamble? If you protect leverage, is it not scary?

Bitcoin, which is often imagined as skyrocketing or crashing, is a financial product with highly volatile price movements compared with stocks and currencies. In other words, if you can ride the trend waves, Bitcoin means a financial product where you can make substantial profits in forex (FX). If you can earn profits not only when prices rise but also when they fall, FX trading offers the possibility of high earnings in a short time even with Bitcoin, which experiences many crashes. However, when people hear FX, many are afraid of the risks, worry about going into debt if they lose, or think that cryptocurrencies are gambling and avoid them. In this article, we explain whether Bitcoin FX is really gambling, whether it isn’t scary if you set leverage low, and how to reduce risks by understanding the mechanics and risks of Bitcoin FX.   ・Is Bitcoin gambling? First, is Bitcoin gambling or not? It is not gambling. As for whether it is an investment, that depends on the person. If you feel Bitcoin has a future and plan to hold Bitcoin for the long term, say 10 or 20 years, then that is an investment. But if you want to day-trade Bitcoin with FX, Bitcoin trading is treated as speculation. Speculation refers to trades aiming to profit from short-term price movements, so not only day trading but all short-term Bitcoin trading would be treated as speculation. So is speculation gambling? Not exactly. Gambling is a system where the house takes the profit, making it a negative-sum game overall. You might win briefly in gambling, but you will lose in total. In contrast, Bitcoin FX is a zero-sum game. There is no house taking profits, so there is no guarantee you will lose. Of course, there is no guarantee you will win either. Because there is no house, chances of winning in Bitcoin FX are more evenly distributed than in gambling. On the contrary, if you manage risk properly by keeping leverage low and limiting losses, you can increase overall profits. In dictionary terms, speculation is not gambling, a term that applies to all kinds of assets, including Bitcoin. Unlike gambling, where you are certain to lose, speculation provides equal chances of winning for anyone. If you are losing consistently in Bitcoin FX, it’s simply a matter of not studying enough. No amount of winning opportunities will come without effort; Bitcoin FX is not a sweet world where profits come easily. If you plan to start Bitcoin FX, you should study why you might lose, what you should fear, and the risks and mechanisms of FX to understand them well.   ・How does earning in FX work? When people think of investment, they imagine buying stocks likely to rise and selling after they rise to gain profit. So how about FX? FX earns profits through the same principle as stock investments. Buy when Bitcoin is cheap, sell when it rises to make the price difference. In FX, you can also earn by selling first and buying back later, proving profits even when the price is falling. For example, suppose Bitcoin is currently priced at 600,000 yen per 1 BTC, and you place a sell order for 1 BTC. By selling, you hold a short position of 1 BTC. Later, if Bitcoin’s price falls to 400,000 yen, you settle the short position by buying back, earning the difference of 200,000 yen. By placing sell orders, you can profit in FX even during crashes or sharp declines. However, you must have sufficient capital to place such orders. In this case, to short 1 BTC at 600,000 yen, you would need 600,000 yen; to short 2 BTC, 1,200,000 yen; to short 3 BTC, 1,800,000 yen. If you lack sufficient capital, you cannot place orders due to insufficient funds. So even if you want to trade Bitcoin FX, you cannot trade without the necessary capital. This is where leverage comes in. By applying leverage, you can execute large trades even with a small amount of capital.   ・What is leverage? Leverage allows you to trade with only a small amount of capital. But how does it work exactly? First, you can raise leverage up to the maximum set by each exchange. Domestic Japanese exchanges cap leverage at a maximum of 25x due to regulations, while overseas, with fewer restrictions, some exchanges offer leverage of 100x or more. What happens if you set leverage to 10x for a trade? With 10x leverage, the required margin is reduced to one-tenth. If Bitcoin is 600,000 yen currently, normally you would need at least 600,000 yen to trade 1 BTC. For 2 BTC, you’d need 1,200,000 yen. But with 10x leverage, you only need one-tenth of these funds. For 1 BTC, you’d need 60,000 yen; for 2 BTC, 120,000 yen. This minimum amount required for trading, given leverage, is called the required margin. If you have at least the amount of required margin after setting leverage, you can trade. For example, with only 60,000 yen, if you short 1 BTC at 600,000 yen and price falls to 400,000 yen and you settle, you can earn 200,000 yen. A 60,000 yen capital could grow to 260,000 yen in one trade. On the other hand, if you place a buy order at 600,000 yen and price falls to 400,000 yen, you would realize a loss of 200,000 yen, and after subtracting the required 60,000 yen margin, you would still be short by 140,000 yen. In normal circumstances, this would be a debt, but most exchanges have a loss-cut rule, so such a big negative margin rarely occurs.   ・What is a loss-cut? Loss-cut is forced liquidation. If losses exceed a certain amount, the exchange automatically closes your position to realize the loss. Though it seems troublesome to have positions forcibly closed, if losses are large enough to trigger loss-cut, forcing liquidation helps prevent further losses. Different exchanges set different margin maintenance criteria. Some liquidate as soon as margin maintenance ratio drops below 100%, while others wait until it falls below 20%. If you want to trade with more financial leeway, choose an exchange with looser loss-cut criteria. However, if the criteria are too loose, you can end up losing a large portion of your margin when a loss-cut occurs, so be careful. Typically, maintaining a margin of about 60% to 80% is desirable.   ・Is leverage dangerous? Even with loss-cut rules, leverage that allows trading beyond your own funds may look dangerous at first glance. But is it really? Indeed, entering full-leverage orders on overseas exchanges with 100x leverage is extremely dangerous. Please do not do that. However, as long as you keep the trading volume within reasonable limits, leverage itself is not too scary. The fear of FX usually comes from the possibility of taking on too large a risk, and simply applying leverage is not in itself something to fear. Even if leverage were 10,000x, if you only place small orders like 0.1 BTC or 0.01 BTC, losses would be limited even if your predictions are wrong. Conversely, if you have only a small amount of funds and place a massive trade such as 10 BTC, a single mistake could cause a large loss, which is dangerous. When trading, keep leverage within your risk tolerance and control your trade size accordingly.   ・Why small trade sizes make high leverage safe If you want low-risk FX trading, always trade in small sizes. Small trade sizes make high leverage actually useful because it reduces the required margin. For example, with 100,000 yen, and leverage of 10x, you can trade up to 1,000,000 yen worth of Bitcoin. If Bitcoin is priced at 500,000 yen per BTC, 100,000 yen in margin could allow a trade of up to 2 BTC. Trading 2 BTC means losses can be twice as large as trading 1 BTC. If you bought expecting a rise and price falls sharply, a 10,000,000-yen loss for 1 BTC would become 20,000,000 yen for 2 BTC. But if you reduce the trade size to 0.1 BTC, a 100,000-yen loss is only 10,000 yen. With a smaller loss, you still have 90,000 yen left to attempt another trade. Thus lowering the trade size can achieve lower-risk trading similar to high-leverage trading. Also, reducing leverage while maintaining margin means you won’t hit loss-cut quickly, allowing more flexible trading. For example, with Bitcoin at 500,000 yen and 0.1 BTC trades, 10x leverage would require a minimum margin of 5,000 yen. With 1x leverage, the minimum margin for 0.1 BTC would be 50,000 yen. If a trade goes wrong and losses occur, with 10x leverage your margin won’t drop below the maintenance margin until it reaches 5,000 yen, whereas with 1x leverage it could fall to 50,000 yen and immediately trigger maintenance margin failure. Thus increasing leverage while decreasing trade size allows you to trade without quickly breaking maintenance margins, keeping losses manageable and enabling ongoing trading. Even if a maintenance margin call occurs (or not) at some exchanges, there is usually no problem as long as you manage risk. However, most exchanges require some form of margin maintenance and will trigger loss-cut if margins deteriorate significantly. Therefore, to prevent such scenarios, when trading Bitcoin FX, adjust leverage and trade size to ensure losses do not exceed expectations. Generally, a reasonable leverage for your capital is around 3x to 5x. If you can keep it at around 10x, it makes risk management easier.   ・Does high leverage with careful trading make FX not scary? No matter how volatile Bitcoin is, FX is not scary if you trade in small sizes and with prudent leverage. For example, suppose Bitcoin crashes from 2,000,000 yen to 500,000 yen. If you held a 1 BTC position, your maximum loss could be 1,500,000 yen. If you reduce the trade size to 0.1 BTC, the maximum loss would be 150,000 yen. If you reduce further to 0.01 BTC, the maximum loss would be 15,000 yen. Thus, as long as you keep trade sizes small, Bitcoin FX cannot lead to huge losses. Of course, reducing trade size also reduces potential profits. If you have never traded FX before, you do not need to immediately increase trade sizes to the maximum. Start by reducing trade sizes to minimum and practice. By trading in smaller sizes, even if your expectations are wrong, you are unlikely to incur huge losses.   ・Summary When people think of FX, they often imagine high-risk trades and gambling-like activities. Indeed, Bitcoin’s volatility can make it seem like dangerous speculative gambling. If you set leverage to the maximum and trade at the maximum capacity, you could experience a substantial loss that could erase your entire capital. But such reckless trading would raise risk in any market, not just cryptocurrencies. On the other hand, even with the high volatility of Bitcoin FX, as long as you pay attention to leverage and trade size, you will not experience huge losses. In fact, trading with high leverage but smaller trade sizes can keep losses consistently minimal. If you’re interested in FX, start by reducing your trade size and trying in a low-risk environment.

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