Crypto Margin Trading

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What is Crypto Margin Trading and How Does it Work?

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.

What is Leverage?

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.

The description of leverage is usually in a ratio such as 1:30, 1:20, 1:10, etc. For instance, you can decide to buy a crypto coin priced at $3.5 with leverage of 1:10. Assuming you have $3,500 in your brokerage account. Using your funds, you can get 100 coins. Through the use of leverage, you can borrow $35,000 from the broker to buy 1,000 coins. Thus, the total number of coins you can purchase at the cost of $3.5 per token with a leveraged position of 1:10 while having $3,500 in your account is 1,000 coins.

Advantages and Risks of Crypto Margin 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.

AdvantagesRisks
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
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.

How to Trade Crypto On Margex

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Step 1: Register an Account

Сlick on the Start Trading button to register your account. The registration process doesn’t require any personal data. Using Margex allows you to trade anonymously. Click the Register button after inputting your email address and password. The broker will send you a confirmation email for your registration. You should open the email and click the link within.
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Step 2: Deposit

Once you receive confirmation of your registration, you can deposit funds into your account. Navigate to the "Wallet" tab from the screen page, then click on the "Deposit" button. You will see multiple options for depositing funds to your Margex account. Deposit Cryptocurrencies: You can deposit any of the available cryptocurrencies from your personal wallet to your Margex account. First, you will copy the Margex deposit address of the cryptocurrency you want to deposit. Then paste it into the destination field of the personal wallet you are transferring from. Alternatively, you can scan the QR code. Deposit with a credit card: you can also deposit cryptocurrencies with your bank card through Changelly or ChangeNow's direct integrations. When you select this deposit option, you will choose the fiat currency and the amount to deposit. Once you click the Exchange button, the system will redirect you to the third party merchant to enter all the payment details. Then proceed to confirm the entered details.
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Step 3: Trade

When you’re through with the deposit process, you can go ahead to engage in trading cryptocurrencies. Move to the Trade page on your account screen and choosehoose the asset you wish to trade. Continue by inputting the order parameters like the order type, size, leverage, and others. Also, you will choose the corresponding order that will feature whether you are to BUY/LONG or SELL/SHORT.

Going Short Vs. Going Long: What's Better?

Going Short

Short positions in cryptocurrency margin trading describe cases where clients sell assets at higher prices and buy at a lower price. They can profit from the price difference between their sell and buy orders. For traders in the short category, they use the words Short and Sell interchangeably. When you are short, you will borrow some of the coins you trade from your broker to sell at a higher price. For example, if the price of BTC is $10,000 per coin and you assume it will go lower, you can borrow Bitcoin from your broker and go short. . Then you will have to wait for the price of BTC to drop before buying at a lower price. If later the price drops to 7,000 USD per coin and you buy back BTC worth 7,000 USD. This leaves you with a profit of $3,000 before you pay an interest or trading fee for the borrowed funds, or in other words the difference between the higher price you’ve shorted at and the lower price you’ve bought back at.

Going Long

Going long in margin trading describes the user buying cryptocurrency at a low price and selling at a higher price. This offers users the opportunity to make larger profits from the difference in the prices of their buy and sell orders. Traders in this category use the words Long and Buy interchangeably.
Smartphones with a laptop

What is Margin Call?

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.

What is Margin Liquidation?

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.

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What is Isolated Margin and Why is it Better Than Cross Margin?

While trading cryptocurrencies on margin, you could use either of the two modes of margin management; isolated margin or cross margin. Each margin management mode depends on the margin ratio (an indicator that determines the liquidation of an open position) and the safety of your investment. Usually, a margin ratio gives the measure of the possible liquidation value of invested funds.

Isolated Margin

By using isolated margin, an investor could allocate part of his collateral funds in the margin account to his open positions. When there is a need for liquidating an invested margin, the available balance will remain unaffected. So, what the trader could lose is just the initial margin.

Cross Margin

For cross margin, the margin is shared among all the investor’s open positions. This includes all the funds available in the margin account irrespective of the amount of invested funds. The trader’s available balance is inclusive in cases of forcefully liquidating the open positions.

What is the Difference Between Margin Trading and Short Selling?

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.

How to Minimize Risks and Increase the Possibility of Realizing Gains when Margin Trading

Here are ways to minimize risks and increase your gains from margin trading.

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Step 1: Make Wise Investments

When it comes to any form of cryptocurrency investment, the general rule is always to invest in what you can afford to lose. With margin trading, you have increased potential for losses. As the value for the leveraged buy increases, so does the possible loss.
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Step 2: Keep Your Leverage Far Below Your Allowed Limit

Although you may have access to borrow a large amount of capital from your broker, you should keep your leverage low. Stick to a small value from the start to reduce the risk of losing more. As you master the trading process more, you can gradually increase the leverage limit to reach higher profits.
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Step 3: Engage Only In Short Term Borrowing

Margin loans, like any other loan, come with an interest charge, particularly known as a financing fee. Borrowing for a longer period of time increases the interest. It is advisable to deal only with short-term loans.
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How Much Does Crypto Margin Trading Cost?

The platform offers competitively low fees for its customers. Here are some of the charges on the Margex platform for crypto margin trading.

Maker Fee

The maker fee is charged as liquidity is added to the order book. This occurs by placing a delayed order that has no immediate match against any order from the order book. For example, a limit order that goes below the present price for BUY order or above it for SELL order.

Taker Fee

The taker fee is charged by removing liquidity from the order book. This involves the placement of an order with an immediate match against an order existing on the order book. For example, a market order.

Maker feeTaker fee
0.019% (for LIMIT orders)
0.060% (for MARKET orders)
Maker fee
0.019% (for LIMIT orders)
Taker fee
0.060% (for MARKET orders)

How To Margin Trade Crypto For Free

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.

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Margin Trading Tips

Familiarize with all the regulatory terms and conditions of your broker

It’s necessary that you understand all terms and conditions from your broker. This will help you avoid unnecessary defaults in your margin trading and protect you from some preventable losses.

Understand the interest rates

Margin trading involves borrowing and interest fees. Though some brokers charge 8%, the rates vary with different brokers, the volume of capital you borrowed, and the period for the loan. Knowing the interest rate you will be paying will form a clearer foundation when processing your trades.

Prevent having margin calls

You must understand that all margin trading has a minimum price requirement that you must maintain in your account. Once you fall below such a level, there will be an urgent need to deposit more funds into your account or you risk having your position liquidated...

Avoid speculation and devise your strategy

Don’t speculate with your funds as it increases the likelihood of losses. You should stick to a simple profit and loss ratio that will ensure you make progress despite making wrong moves. Learning and following disciplined patterns in your trading is more profitable. So, devise a simple trading strategy and go with it.

Keep a backup fund

You must maintain a backup fund in addition to the one you use for trading.This will help you in cases of margin calls or hedge a loss by trading other crypto assets.

Keep up with the recent news

Make sure you are up to date with the latest industry news. This will help you in deciding on the right cryptocurrencies to include in your margin trading.
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Frequently Asked Questions (FAQ)

Is crypto margin trading profitable?

Margin trading in cryptocurrencies can be profitable as it allows you to borrow and trade with more capital compared to what you would be able to in spot trading. Consequently, if the trades become successful, you will realize greater profits from the leveraged position.

How does buying crypto on margin work?

To trade crypto on margin, you will first register for an online account with a crypto broker that offers margin trading. Once you satisfy the requirement of the broker, such as maintaining the minimum margin balance, you will gain access to margin trading. This means that you can borrow more capital from the broker to buy crypto coins.

Is margin trading risky in crypto?

Margin trading in cryptocurrencies is associated with high risks as cryptocurrencies are associated with high volatility. Trading on margin carries more risks as the value of the cryptocurrency can rise or fall dramatically, which can lead to liquidation.

Is margin trading the same as leverage?

Although margin and leverage are interchangeable and assumed to be the same by many people, they are different. Margin is the minimum capital an investor needs to facilitate a trade. On the other hand, leverage is the available funds that an investor can borrow from a broker. While margins are measured as percentages, leverage is measured as ratios.