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What is Margin Trading?

Margin trading is a type of trading in which the funds are provided by a
third party. Traders actually don't own the amount they are trading.
Traders have access to greater capital as compared to simple trading
accounts, allow users to use leverage on the trades.

Margin trading is popular in International Forex (Foreign Exchange)

market but also used in stock, commodity and cryptocurrency market.

In Forex and Stock markets the funds are provided by an investment

broker. However, in the cryptocurrency market, the funds are provided by
other crypto traders who can earn interest on margin leasing. Also, some
popular exchanges provide funds to users.
How Margin Trading Works?
Whenever a margin traded is initiated the trader need to lock a certain
amount of the total order known as margin. The order value and initial
investment (Margin) is based on the leverage taken.

For example: If a trader opens a $1,000 order at a leverage of 10:1 then the
initial investment (Margin) needed is $100. In Simple words, we can say
that the trader has only $100 but because of leverage trading, he can trade
with $1,000 and maximize the profits with small investments.

What is Leverage?
Different exchanges and market offer different rules for margin and
leverage trading. The leverage ratio in the stock market is 2:1, while future
contracts can be traded with 15:1 leverage. The range will be higher for the
Forex market typically trades with 50:1 and go to 500:1.

The cryptocurrency market offer leverage ranges from 2:1 to 100:1 and
crypto traders denote the leverage ratio in "X" for example 2x, 5x,10x and
100x.

Traders can use margin trading for both long and short positions. A long
position means that the price will go up (assumption) and a short position
means the price will go down. Traders need to keep in mind that the funds
they are trading with are not their (borrowed), so traders can be forced to
close the trades in loss (only if the brokerage wants that).

Many cryptocurrency exchanges provide funds for margin trading and

users have full control over the trades when to close and when to hold.
Bitcoin Margin Trading
Margin trading is always risky and when it comes to cryptocurrency
market the risk increases. Bitcoin and cryptocurrency market are highly
volatile and that catches the eye of swing/scalp traders.

Crypto VIP Signal team did not recommend Bitcoin margin trading for
beginners. Traders need a lot of skills and efforts to analyse the market and
open a long/short position. The entry and exit points should be calculated
before taking any trade.

What is Liquidation?
Liquidation is a very important term when it comes to Bitcoin margin
trading.

Let's assume a trader opens a long position, Liquidation is a stage when the
price drops to a threshold limit where all the margin will be used. Users can
change the liquidation price by depositing into their account and more
contracts to the position, if user unable to reduce the liquidation and the
price hits the liquidation price then the position is automatically closed by
the exchange.

The trader will lose all the margin (Initial investment without leverage) of
the trade. The liquidation price is different for different leverage values, for
2x the liquidation price around 50 percent below the buying price and for
10x the liquidation price is around 10 percent below the buying price.
Different Bitcoin Margin Trading
Platforms/Exchanges
There are many cryptocurrency exchanges that allows users to trade with
leverage, few of them are only dedicated to Margin Trading.

• Binance (Have a lot of trading pairs)

• Bitmex (Only Margin Trading)
• Deribit (Only Margin Trading)
• Bitfinex
• Poloniex
• Kraken
• Huobi
• OkEx

Advantage of Bitcoin Margin trading

The main advantage of Bitcoin Margin trading is that the profits are big and
quick because of big positions and leverage. A trader can earn a good
amount of money with small movement in price. Bitcoin margin trading
gives users a chance to test their skills and patience.

Disadvantage of Bitcoin Margin Trading

Trading on margin is highly risky and the cryptocurrency market takes the
risks to a new level. A small drop in price results in a big loss. The risk
increase with the leverage taken, high leverage means more risk. Traders
must use stop-loss in each trade to reduce the risk of losing all funds
(Liquidation). Stop-loss gives users a second chance to overcome losses.
Margin Funding
Users that not want to take high risk into leverage trading can earn from a
different way known as margin funding. Some trading platforms and
cryptocurrency exchanges allow the feature of margin funding where users
can lock their funds to other traders that are using leverage trading.

There are some terms and minimum requirements to earn from margin
funding. The requirements may differ from exchange to exchange. The risk
to lock the funds for margin funding is low because some time the exchange
can manipulate the price to forcibly liquidate positions. The user funds are
stored on the exchange wallet so there is a risk of hacking. Users should
store their Bitcoin in cold wallets or hardware wallet. Here is the list of best
wallet to secure the privacy of a user.

Conclusion
Margin trading is a tool to make quick profits in short term. If leverage
trading used properly with risk management the portfolio will be increased
with goof RoI (Return on Investment).

However, Margin trading is very risky and there is a risk of losing

everything in a single trade with a small drop/up in the price. Traders need
high skills and risk management techniques. The volatility of the
cryptocurrency market increases the risks.

Thank You

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