Warren Buffett and Margin Trading

if you’re smart, you don’t need leverage; if you’re dumb, it will ruin you. The smart and the dumb—and all the rest of us in between—should pay heed.

We learned in the '20s that markets with participants playing heavily on margins could be more dangerous than markets where people are dealing in cash.

Do you margin trade?

Yes, but in a very limited area of crypto-currency. The problem with my “trades” is that they have been on underlying currencies in which I wish to create a long term holding. So there are no stop losses involved.

I have to admit that this is a very haphazard approach to crypto trading, and I recognize this, but still take up to four trades per month.

To improve this, I am in the middle of re-entering leveraged Forex trading, and the strategy and planning has become a very long winded affair. I believe that I am at the point where I just need to finalize my choice of two indicators via which to complete a trading plan for Forex. If that back tests with positive results, I will use that in forward testing for 3 months. If that demonstrates a positive edge, I will reuse the same strategy and plan, and start all over again testing for crypto-currencies with which I am familiar.

The difference between this formality for Forex and the same for Crypto currency is that the former is a plan to increase funds in new bank whose existence is defined in quantity, whereas the latter plan is to mitigate risk to our existing crypto investments against a large drop in market price. I had thought the crypto market could drop by about 40% around end of September, but it in fact dropped around 50% during May and June. on the one hand, this is an urgent activity because of the relatively high value of our crypto holdings (relative to last year, anyway).

Suffice it to say that I have been more successful in the short term with crypto investments than any other investment in the past 20 years, which may be due to not using any leverage. However, the objective of using leverage is not to earn even more profit - it is to have a plan in place to use a portion of what I perceive to be “excessive profit for a specific timeframe” to “buy insurance” against the market going the other way.