What is Margin Trading? (See How Crypto Leverage Works)

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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 day trading can be rewarding in a very big way, but still, can be too risky, due to the fact that someone can simply loose huge amount of money at an instance.

It is always advised that one needs to first of all, learn the basics of cryptocurrency market before investing a reasonable amount of money in either cryptocurrency trading or crypto margin (leverage) trading, using a better strategy to avoid lose of investment.

Assuming you want to margin trade crypto, and you invest up-to $1,000 while the price of bitcoin increases by 200%, your money will instantly become $4,000, and will be more like – WOW! – right?

But what if you put the same $1,000, and for one reason or the other, your luck didn’t shine as the bitcoin price value goes down below cost price by 50%.

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With such example, 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 make money online with bitcoin investment that is popularly 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.

Cryptocurrency Margin Trading

Margin trading crypto 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.

IF you are trading cryptocurrencies with margin, it means you’re adding leverage to your position by borrowing money to increase the size of your trade.

The funds borrowed may come from the exchange itself, or it may come from an outside lender, or it could be a peer-to-peer lending solution. It is typically necessary to pay interest on the funds borrowed to trade on margin as well.

The basic definition of margin trading is borrowing funds to leverage your bet, or make it larger. This can be a good strategy if the odds are in your favor, since it can amplify your profits. But it also amplifies losses, which is something many new traders fail to consider.

Watch the video to understand how margin trading works:

Also, read 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 up-to $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 when the lender forces you to liquidate your position to ensure you’re able to pay back their loan and the associated interest and fees. You can usually avoid a margin call by adding more of your own money to the position.

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 dive in and discuss it further below…

Who provides the borrowed crypto, and why?

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

Margin lending is an act where individuals borrow cryptocurrency leverage 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 investment, 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 allow margin lending and trading of cryptocurrencies.

Best Margin Trading Crypto Exchanges

If you have checked yourself, and confirm or feel you can do cryptocurrency day trading without meeting with huge loss, below are some of the best margin crypto exchanges where you can start cryptocurrency margin trading for any of your choice.

1. BitMex

Bitmex Trading Window

BitMEX facilitates margin trading for cryptocurrencies and has gained quite a lot of respect in the crypto-sphere in a rather short period of time.

The team comprises of experienced developers, economists, and high-frequency algorithm traders, which makes it a reliable product.

The registration process on BitMEX is simple as you just need your email to get started, plus, you can also secure your funds using the 2-FA authentication feature that BitMEX provides.

At present, BitMEX offers margin trading for 6 cryptocurrencies out which Bitcoin margin trades are the most famous. Here is the fee, as well as the leverage schedule for all the cryptocurrencies:

2. Huobi Pro

Huobi Pro Margin

Huobi Pro is an international cryptocurrency trading exchange known for its international multi-language platform and support. The exchange headquarters in Singapore, and has offices in Hong Kong, Korea, Japan, and the United States and is operating in this space since 2013.

To get started on Huobi you need register with your email ID and submit your documents for KYC. This process might take a day or two.

Post which you can start trading on Huobi Pro and you can also enjoy their margin trade feature where several cryptocurrencies are listed for margin trade. On Huobi one can leverage up to 5X in BTC and margin trade following cryptocurrencies for BTC: Dash, ETH, LTC, EOS, BCH, XRP, OMG, ETC, ZEC and ADA etc.

3. Kraken

Based out of San Francisco, Kraken is one of the largest Bitcoin and altcoin exchanges in the USA.

It is also the biggest exchange in terms of EUR volume where anyone can register using their email ID and get started after proper KYC verification. It typically takes up to 7 days to get the verification done from Kraken after which you can deal with fiat currencies like USD, EUR, GBP, CAD etc.

One can also margin trade on Kraken and get the benefit of different leverage options that it provides for different pairs.

WhaleClub

WhaleClub is another platform that is based in Hong Kong. It allows margin trading of cryptocurrencies, commodities, and forex.

Operational since 2016, it has earned a good name in the crypto margin trading market. For now, you can deal in five cryptocurrencies over WhaleClub which are BTC, LTC, ETH, XMR, and DASH.

Whale Club Margin Coins

Now you’re so much into trading bitcoin, or all other cryptocurrencies on leverage (margin) trading, but you really have to be sure of yourself, also consider certain things before going into such kind of crypto trading. This is why you should read and thinking critically with the next point below.

Should you margin trade cryptocurrencies?

If you’re basically new to cryptocurrency world, or even crypto trading as par say, i will suggest you restrain from going into margin trading any crypto with your cryptocurrency investment.

Cryptocurrency trading on its own is very stressful, and highly risky to the extent you can loose any amount of money you invest at an instance.

In other words, going into margin trading as a beginner in the cryptocurrency margin trading world, would also increase the overall stress level if you should incur any loss in the process.

However, if you have already made up your mind on going into crypto margin trading, i will recommend that you research thoroughly on how tio enter and exit margin trades with gaining much loss.

There are places you can find how to trade any cryptocurrency with margin. For example, you can learn everything about margin trading bitcoin on a sub-reddit. But there are also other forums, and social media groups that can actually teach you margin trading if you can research and find all of them.

Try to understand how to read technical indicators in the cryptocurrency market price movement charts, so to have upper hand in leveraging profits using crypto margin trading.

Major Advice: If you aren’t already intimately familiar with technical indicators and trading with them take the time to familiarize yourself before using margin. Blindly trading is a surefire recipe for disaster and any pro will tell you not to speculate blindly, and especially not when leverage is involved.

Final Thoughts on Margin Trading Cryptos

Leverage or margin trading needs a great understanding. Even though, margin lending can be lucrative for most beginners, margin trading on the other hand, is not recommended for noobs in the cryptocurrency world.

Margin trading in all, is an exciting as well as risky way to get involved in the cryptocurrency markets. There’s great profit potential, but also huge risk for the unwary. Anyone thinking of using margin in their cryptocurrency trading should be sure they already have a solid base of trading and technical analysis, as well as a strong personality to ride out the inevitable volatility.

If you hold a lot of cryptocurrency using margin may be a good way to avoid keeping it all in an exchange wallet, where it is vulnerable to hackers. Instead you can keep your own coins offline in cold storage and use margin to trade with.

This removes at least some of the risk associated with leveraged trading since you do have the funds to cover losses, or to cover a margin call. The downside is that you could still have a position liquidated unexpectedly during a downturn.

When you hold cryptocurrency long-term it doesn’t matter too much what price does, but if you’re using margin a short-term drop in price can force a margin call and lost money.

Finally, if you aren’t experienced in the crypto trading, you may want to take a slower approach to margin trading. Learn all you can about it, learn as much as possible about technical analysis of price action, and develop a margin trading strategy.

This might not guarantee you’ll avoid a margin call, but it will certainly make it less likely. Don’t forget to invest according to what you can afford to loose.


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