Crypto Margin Trading Exchanges and Guide To Begin With It
There is a lot of hype going on in the Cryptocurrency market about the high profitability of Margin Trading. Margin Trading is now becoming a popular and exciting idea among traders. Crypto traders are becoming highly influenced and aware of this idea and how they can benefit their investment and increase their profit.
Whether you are a Swing Trader or a Day Trader, you must be knowing what Margin Trading concept is all about. But if you have got no clue about it, you have come to the right place. Whereas, if you are new to Crypto marketing but have a limited amount of capital to trade with, then you should definitely consider this medium to gain profits.
Here, you will get the perfect guide about all the points you need to learn about crypto margin trading. Along with knowledge, we will also guide you about the exchanges who are providing the best platform for margin trading.
What is Cryptocurrency Margin Trading?
In simple words, Cryptocurrency Margin Trading is the trading where you use borrowed money or funds to trade in order to gain higher profits. You can borrow money from a cryptocurrency exchange.
In margin trading, the money or funds that you borrow is against the funds you already have in your account. It involves borrowing the capital at a comparatively high-interest rate so you can experience increased profits.
To increase your buying power, margin trading offers the potential for greater profits. Margin Trading will surely let you experience increased profits and leverage if the market and trades move in your favor, but it also comes with the risk of increased losses. So, if you are planning to go for the Margin trading in cryptocurrency trading, then you should absolutely be prepared for the losses that might come when you are planning for the profits.
Let us take an example if you want to invest in a cryptocurrency that you feel may generate long term gain but you have only $1,000 to spend in your trading account. In this case, you need more capital to trade so you can enjoy comparatively more profit. This is where Margin Trading comes into play. Here, you borrow funds against the funds in your trading account. So, you borrow $1,000 from the exchange and then trade with the total money you have, this will increase the chances of increasing your profits if the trades move in your favor.
Exchanges that are best for Crypto Margin Trading:
- BINANCE
- COINTREE
- PCEX
- ETORO
- KRAKEN
- BITMEX
- BITMAX
- POLONIEX
Crypto Margin Trading- How it Works?
Crypto margin trading is basically related to leverage. Traders use Margin to produce leverage. Leverage is the increased buying power or trading power you get when you are trading cryptocurrencies on margin. Leverage allows the person to trade positions larger than the amount present in the trading account.
Leverage is expressed in the ratio form. It is the ratio between the amount of money the person actually has and the amount of money he/she can trade. For example, if a platform or an exchange is offering leverage of 3:1, you could open a position worth thrice the value of your trading account. Like if you have $10,000 in your account, then you can place a trade worth up to $30,000. As a result, if the market moves in your favor, your profits will increase by the amount of leverage you have chosen but, losses also get magnified if the market moves against you.
Long vs Short Margin Trading
There are two options when starting a margin trade:
- Long: In this, when traders buy a cryptocurrency with the expectation that the price will rise in the future, they enter in this for a longer run. Their aim is to use leverage to experience increased gains if the price rises.
- Short: In this, traders sell the cryptocurrency when they assume that the price will come down, they enter in this for a shorter period of time. Then the aim is to purchase that cryptocurrency back as soon as its price has dropped and gain the profit from the spread.
How is cryptocurrency margin trading different from regular trading?
All of us know that the basic meaning of trading cryptocurrencies is to buy and sell the cryptocurrencies or digital currencies with your own funds. You buy the coin at the current price and hold onto them until the price rises, so you can earn a profit.
But in Margin trading, you borrow the money from the exchange or the broker to increase your potential of buying, which lets you make more profit out of it.
Benefits of Cryptocurrency Margin Trading
Margin Trading has great potential for making huge profits. If the market moves in your favor, you will have a great chance of experiencing larger gains. So, the advantage of Crypto Margin Trading is that with deeper knowledge and understanding of the cryptocurrency market, you can experience bigger profits.
Risks Involved
The biggest risk you need to be aware of is that while Margin trading has a great potential of increasing your profit but it can also put you in great loss. You should keep this in mind even before you start thinking of practicing Margin Trading.
Before starting margin trading, you should remember that it increases the chances of both profits and losses. On one hand, you will enjoy higher profits if the market moves in your favor, but on the other hand, you will also suffer large losses if the price moves in the opposite direction than your assumption. Anyone who is new to trading or cryptocurrency should be very much aware and informed about the results it can have.
Traders should also be aware that they are required to hold a certain percentage of the value of your position on the exchange each time. So that the position remains open. If you experience a loss in your position that exceeds a certain limit, your order will automatically be closed.
Tips
- Think again: If you are new to cryptocurrency trading, you should always think again before starting a Crypto Margin Trading. This is very risky and is done by experts traders.
- Start slow: For new margin traders, it is always a good idea to start slowly by using low-level leverage and also avoid using all funds in a single transaction.
- Manage the risks: Making use of the stop-loss and take-profit means will allow you to set clear limits for closing positions and also help you to prevent losses and manage risks.
- Research the exchange: Make a research about the exchange’s criteria of Margin trading, because some exchanges offer margin trading to only those customers who meet a certain range of criteria, like ID verification or being able to access a certain amount of capital.
If you are an experienced trader or want to start trading then make sure to research and gain as much knowledge as you can about the crypto margin trading to increase the chances of gaining profits and lessen the risk of losses.
