How to use your current ETH/BTC to make more ETH/BTC by trading the market fluctuations using Pionex Margin Trading Bot
TLDR: Use your ETH as collateral borrow USDT on margin to make extra ETH. Set a wide lower/upper limit so that you don’t have to worry about crashes and price dips, and watch the grid bot do the work for you trading algorithmically while you sit back and HODL
Preface: I don’t work for Pionex, I’ve just been using their platform for a couple months and it has been working for me. This post will explain my thought process on why I feel like this is a good long term strategy for people that are looking for ways to increase their crypto holdings while not wanting to time the market by selling in and out of USDT, with pretty low risk as long as you are willing to HODL over the dips. I am not a financial adviser, so please trade at your own risk.
What is my goal?
I am a long term believer in cryptocurrency, and I specifically support Ethereum. I am also very bullish on Bitcoin as a store of value and understand that it is more robust and secure, but I believe Ethereum has a bigger upside and also have more potential because of how much more the network can do. The strategy that I use works for both ETH/USDT and BTC/USDT pairs. Because of this, I am trying to accumulate as much ETH and BTC as possible without worrying too much about the current price of these two coins. I believe that ETH will hit 5k, BTC 100k within the next couple years, so short term price fluctuations don’t bother me very much and only presents itself as potential opportunities to increase my coin count in the upcoming digital economy. But I also don’t want to time the market by selling into USDT at any given moment, because I can potentially be caught in a situation where I made the wrong choice and now have less ETH when buying back in if ETH happens to go on a huge bull run that never looks back. I want to find a strategy that can maximize my beliefs and goals. This mindset is very important when using this strategy because it will help you hold through the various bull and bear cycles. If you get easily spooked by dips and will sell out or stop the bot, you might end up getting caught up in a bear cycle and will end up realizing paper losses. Having said that, only trade coin amounts that you absolutely do not need to convert to fiat in order to pay bills or for other life things. This strategy requires you to hold during big dips.
What is Pionex?
Pionex is a crypto exchange that consolidates their trades which in turn provides liquidity and market makes for Binance and Huobi, two of the largest crypto exchanges in the world. The advantage of using Pionex instead of trading on Binance directly is that it has several algorithmic trading bots baked in that will help you hit your goals by setting various different parameters. For the purposes of this writeup, I will only be talking about Margin Grid Bot because this is the one I use for 99% of my trade as it is the one that best helps me achieve my goals. Pionex is owned by Bituniverse, which provides API trading directly with Binance but has much more limited functionalities and bot strategies. I would actually prefer API trading directly with Binance as Binance is much larger and therefore would be a safer exchange to trade on, but Pionex support have told me that they have discontinued a lot of trading bots for Bituniverse because of the instability of API calls, which is unfortunate.
Margin Grid Bot
The Margin Grid Bot is the bot I use for 99% my trades on Pionex, but I also use other bots that help me achieve other goals with alt coins. If you guys are interested in those other strategies, let me know and I’ll do a more in depth writeup of those bots I have running. So what is Margin Grid Bot? Essentially, it is a trading strategy that allows you to use the ETH you own as collatoral to borrow USDT in order to facilitate Buy Low/Sell High strategy on the ETH/USDT pair. The important thing about this strategy is that the profit is settled in ETH, not USDT. The basic interface of the Margin Grid Bot looks like this:
Photo: Setting up your parameters
There are some parameters you need to fill in for you to initiate the bot and have it start trading automatically for you:
- Lower Price (USDT)
- Upper Price (USDT)
- Arithmetic/Geometric
- Grids (2-150)
- Leverage (0.2x, 0.5x, 1x, 2x, 3x, 4x)
- Margin
When you initiate the strategy, the bot will instantly buy into ETH a portion of the USDT you borrowed in order to begin taking a position in the ETH/USD market using market orders. The percentage of the USDT it uses to buy into ETH to take its opening position will depend on what the current spot price of ETH is in relation to what you have filled for the Lower Price and Upper Price. You will be charged a small amount of interest (rates fluctuate based on pool liquidity) and is charged hourly. But don’t worry, as long as there is grid profits, it will more than cover your interest.
For Example: Current spot price of ETH is $1000. You set the upper lower price as $500, and upper price as $1500, and you initiate the bot. The bot will use 50% of its current borrowed cash and buy into ETH to take a position in the market.
It will begin building sell orders above the current spot price and buy orders below the current spot price. Buy low, sell high right? The number of buy/sell orders will be determined by the number of grids you have chosen. I suggest playing around with the # of grids so that you are targeting between 3-5% profits so you aren’t trading too frequently which will eat into your profits. Any time that you hit a specific buy or sell limit order, the bot will readjust itself so that it can re-target that 3-5% profit that you have set. During the fluctuations of the market while it is going sideways, you are constantly locking in that 3-5% of the current position it is holding. That is basically the basis of how the bot works to gain you extra profit during market fluctuations. The profits it earns is considered “grid profit” which will always be positive as soon as you start making your first transaction. When the spot price hits the bottom limit order, it will have used up all it’s cash and have its whole borrowed cash completely in ETH(because you are telling the bot that you think it’s the lowest ETH will possibly go), and when the spot price hits the Upper limit, it will be completely back in USDT borrowed cash (because you are telling the bot that you think this is the highest ETH will possibly go).
However, this is not to be confused with your “total profit”, as you still took a position on ETH when you initiated the bot - if the current spot price of ETH is below what you initiated the bot at, then you will have unrealized profit(loss). The calculation for your total profit(loss) = Grid Profit - Interest + Unrealized Profit(loss). This is automatically calculated for you.
Parameter Suggestion
- Lower Price: 600 USDT - recent ATH is ~$1400, I don’t believe ETH will ever fall below 600 again as now we have institutional players at play. If you want to be extra safe, you can put 300 or 400 here, but just understand that when price hits 600, the bot will still have extra cash on hand because it is expecting the price to drop even further. You want to be able to sleep at night, so put a low enough number here so that you ensure grid bot is always making grid profits in the event the price dips substantially
- Upper Price: 3000 USDT - here, I always put at least 2x or 3x of ATH prices. This prevents me from having to readjust the bot because the spot price has outgrown my current bot parameters
- Arithmetic/Geometric - I always use geometric
- Grids - play around with the grid number until you get around 3-5% profit numbers. The bot will hit limit orders lest frequently, but you will lock up more grid profits this way
- Leverage - set a leverage amount that is below your lower limit price. I would advise against anything over 1x if you don’t know exactly what you are doing. After inputting the leverage it will show you the liquidation price. Make sure your liquidation price is below your lower limit price. IF SPOT PRICE HITS YOUR LIQUIDATION PRICE WITHOUT YOU PUTTING IN MORE MARGIN USING ETH YOUR WHOLE INVESTMENT WILL GET LIQUIDATED. To avoid this you can add margin to the account to further lower your liquidation price. Try to avoid doing this as you would possibly lose more than your original investment.
- IF SPOT PRICE HITS YOUR LIQUIDATION PRICE WITHOUT YOU PUTTING IN MORE MARGIN USING ETH YOUR WHOLE INVESTMENT WILL GET LIQUIDATED
- Margin - How much you want to invest in this bot
Why use Margin Grid Bot?
You already own ETH or BTC. You are watching the price fluctuate every day already, and you are long term bullish on ETH or BTC prices. You want to earn more coins during this time, and you don’t get scared by dips since you are just gonna HODL anyways. Dips are opportunities for you to make extra coin using grid profit, and because you take an ETH position using borrowed USDT, you will make even more ETH if the price of ETH rises happens to rise right after you initiate the bot. I look at the Margin Grid Bot as buying insurance - if it drops when you enter the position, your grid profit is doing most of the heavy lifting and earning a bit extra than if it was just sitting there. If you enter the position during a bull run and you let it run, you could potentially double your ETH amount when you decide to exit out of the position and realize the position. You can open this position at any point and feel like your money is working for you instead of just sitting around (since you expect it to recover to this price point anyways)
Scenario 1: Price of ETH start dropping as soon as you initiate the bot
Grid bot will buy on the way down hitting buy limit orders. And anytime there is retrace, it will hit sell limit orders locking in 3-5% of profits based on its current holdings. All you have to do is to have patience while you wait for the price to recover. If price recovers to where you initiated the bot (opening price), you will be net positive grid profits. This is extra coin that you otherwise wouldn’t have had if you just HODL’ed without using the bot!
Scenario 2: Price of ETH start to rise as soon as you initiate the bot
Grid bot will hit sell limit orders on the way up, locking in grid profits of 3-5%. Because you initiated an ETH position with borrowed USD, you are also make extra ETH. You can choose to let the bot continue to run and rack up ETH, or you can close the bot in order to lock in your profit.
When is the best time to open Margin Grid Bot?
The best time to open margin grid bot is always when you feel like the price is low or when there is a major crash in the market. However, one of the problems with Pionex is that it doesn’t always have liquidity to borrow enough USDT as everyone else is also trying to do the same thing.
NOTE: Your capital appreciation will always much much more than grid profits, the bot will be taking a sizeable position in ETH when it first initiates.
Risks
There is no investment that doesn’t come with risks, so I want to go through all the potential risks that I have come up with.
- Pionex goes down/gets hacked - always the biggest risk when it comes to centralized exchanges. If Pionex goes down or goes rogue, you will not be able to recover your funds. Not your key, not your coin
- You are using your ETH as collatoral to buy more ETH positions - when the price of ETH falls, you are losing money on both your original ETH and the ETH you have bought on margin. Your USDT value of your account will be extremely painful because you are losing USDT value on both sides. Conversely though, when the price of ETH goes up, you are making money on both the capital appreciation on your original ETH and the ETH you have purchased, basically double dipping on both sides. Because I am bullish on ETH, I am willing to take this risk of short term USDT value pain for long term potential gains by accruing more ETH
- Price falls out of grid profit lower limit, so you are holding extra coin on margin - that’s why you want to make sure you set a lower limit that you are absolutely comfortable with, or else if it starts trading sideways below your lower limit you will be left holding the bag on margin without making money on grid profits while paying interest. But if you follow this tutorial and choose a low enough lower limit, plus don’t over leverage yourself, you basically just sit and hold and watch the bot make you at the very least grid profit ETH until it recovers to the price you initiated the bot, and at best make you extra ETH when it goes above that price
- You initiate the bot and you need to sell the ETH into fiat in order to pay off some bills and so you need to realize your loss before it comes back to the current price. If you need the ETH for fiat in the near future this bot is not for you.
Other than those two major risks, I’d say this strategy is pretty risk and hassle free, without you really having to worry about price dips and fluctuations. I feel comfortable opening this bot at basically any price point because I feel like ETH is still heavily undervalued long term. When the price starts dropping, you cheer the bot on as it is buying cheap ETH. When the price recovers, you lock in profits on it’s way back up. If you happen to enter the position on a bull run, you make extra ETH while ALSO making grid profits. Win Win, Win.
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