Crypto margin trading is the method of using available funds from a third party, usually a crypto broker, to engage in crypto trading activities. The funds serve as borrowed capital that a user can access from his broker. This method of trading is different from the regular trading model in that the user has higher capital for trading and can leverage their position. This means increased possibilities of making more profits through successful trades. Similarly, the risks in margin trading are higher than in regular cryptocurrency trading. The user must first create an online account with the broker and complete all the necessary account verification procedures.. Only at this stage will he become eligible for margin trade crypto on the platform. In some cases, the funds for margin trading come from other crypto investors. They usually earn interest depending on the turnout of market demand for the funds. Some crypto brokers could also be the source of the funds for crypto margin trading for their customers.
Leverage is the use of borrowed capital to trade cryptocurrencies. . With leverage, you have a higher purchasing power that will enable you to initiate larger positions. Such positions are usually greater than what your personal money can achieve in regular trading.
Crypto margin trading has both advantages and some risks that are associated with it. The peculiarity of the process is that its benefits and disadvantages mirror each other extensively.
Advantages | Risks |
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Higher profits | Greater Loses |
Accessibility to more funds | Quick loss of capital in case of high volatility hours |
Introduction of trading disciplines and risk management strategies | Higher difficulty and a steep learning curve for beginners. |
Advantages |
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Higher profits |
Accessibility to more funds |
Introduction of trading disciplines and risk management strategies |
Risks |
---|
Greater Loses |
Quick loss of capital in case of high volatility hours |
Higher difficulty and a steep learning curve for beginners. |
A margin call is a situation where a trader’s margin drops below his margin requirements for the deal. For cross margin, with such a call, the trader is expected to fund his account either by depositing more funds, liquidating some of his other trades in the account When using isolated margin, the user is prompted to add more margin to the trade, as his potential loss does not exceed the margin limits of the deal and cannot result in a full liquidation of the account. When an investor fails to meet the margin call, the broker closes out any of his open positions. The broker doesn’t need the investor's approval for the liquidation. Furthermore, where there are losses resulting in the low margin and the sell-off, the investor will be solely responsible for them.
Margin liquidation is the forceful closure of an investor’s leveraged position as the margin of a deal goes below the minimum requirement to sustain the trade open. Usually, the investor will receive a margin call that will prompt him to fund his account by depositing more funds. The use of leveraged positions is a risky trading strategy that could result in a complete loss of the initial margin or collateral the investor has. Some jurisdictions like the UK have banned crypto brokerages and exchanges from offering leveraged trading services. This move serves as a great means of protecting traders, especially newbies' capital.
Margin trading centers around borrowing money from your broker to buy assets with the intention to resell them and make a profit. Short selling involves borrowing assets from your broker intending to sell at a higher price and repurchase once the price of the asset drops. Though the two processes have to do with borrowing from a broker, the difference lies in what each has to borrow. While margin trading aims at buying assets with borrowed money, short selling is for borrowing assets to sell at a higher price.
Here are ways to minimize risks and increase your gains from margin trading.
Maker fee | Taker fee |
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0.019% (for LIMIT orders) | 0.060% (for MARKET orders) |
Maker fee |
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0.019% (for LIMIT orders) |
Taker fee |
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0.060% (for MARKET orders) |
Using Margex for crypto margin trading provides traders with some advantages. By registering an online trading account on the platform, users will receive a $50 bonus that they can use to pay for trading fees. Also, depositing 0.004 BTC or $200 in any of the cryptocurrencies available as collateral or more gives the trader an additional bonus of 50 USD. You can visit the official website to join now and start trading to enjoy these exclusive bonuses from Margex.