Margin Trading and how Online Leverage Trading Works

by The 'Staunch

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As you may have known already, the cryptocurrency world is greatly rewarding, but very volatile, and that is to say, cryptocurrency margin trading can be rewarding in a very big way, but still, can be very risky.

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It is always advised that one needs to first of all, learn the basics of cryptocurrency leverage trading market before investing a reasonable amount of money in it.

Assuming you invest upto $1,000 and the price of bitcoin increases by 200%, your money will instantly become $4,000. It’s more like – WOW! – right?

But what if you put that same $1,000, and it your luck didn’t shine as the bitcoin price goes down below cost price by 50%. You see? Like they always say, what is sweet can also kill at the same time if good care is not taken on time.

However, this brings us to yet another discussion on one of the rewarding, but also the riskiest way to earn money online with bitcoin investment which is called, Margin Trading (normally known as Leverage Trading).

Though, it’s not all that risky if you’ve got to learn it very well, because you can actually use it alone to greatly increase your major investment goals – if not all.

Now, what is Cryptocurrency Margin Trading?

Margin trading is an act of leveraging your cryptocurrency existing portfolio on the exchange that supports margin lending to borrow or buy more cryptocurrencies which you will use to participate in arbitrage trading for bigger profit.

Watch the video to understand how margin trading works.

Read below – a written example of leverage trading

Let’s assume for instance, you want to invest $1,000 in BTC, but you only have $500. Now, to bring in the extra $500, you have to borrow it through the margin of 2:1 (i.e. 2x – meaning that, for every dollar you have, you will get extra one dollar to invest), Fine.

Let’s say that BTC price increased by 50%, so has your investment also. The $1000 BTC invested is now worth upto $1,500. You can liquidate and pay back $500 to the margin lender while enjoying your profits of $1000.

But on the flip side, if the BTC price should drop by 50%, your investment of $1,000 will also reduce to $500.

In this case, the lender needs to be protected, and has the first right to claim the remaining $500, which goes to the lender. Now, your initial investment of $500 is also lost and you got nothing left for you the borrower.

This is why it’s strongly advisable to focus on 1:1 trading of cryptocurrencies until you master the risk that comes with margin trading.

I already know you’ll be wondering who provides the extra cryptocurrency that is been borrowed by margin trading borrowers. Let’s discuss it further below.

Who provides the extra cryptocurrency borrowed for margin trading, and why?

Margin trading brought about a brand new opportunity for bitcoin investors, as this is why you might have heard of the term – Marging Lending.

Margin lending is an act where individuals borrow traders (also known as margin traders) the extra money or tokens to leverage their earning. In return, the borrower pays back the borrowed cryptocurrency with additional interest to the lender if a profit was made during the trading session.

If the margin trader’s portfolio performs poorly according to the agreed conditions, their position is automatically closed by the broker to refund and save the lenders so that they get their interests and principal first.

It seems like a very good way to earn heavily, right? Well, it’s true somehow, but there’re few exchanges that allows marging lending and trading.

Cryptocurrency exchanges that provides margin trading feature

1. Bitmex
2. Huobi
3. Bitfinex
4. Kraken

Final thoughts on margin or leverage trading

Leverage trading needs a great understanding. Even though margin lending can be lucrative for beginners, margin trading on the other hand, is not recommended for noobs in the cryptocurrency world. Don’t forget to invest according to what you can afford to loose.