For those who have a small amount of crypto resources i.e. Bitcoin and altcoins is the possibility to trade margins in order to increase leverage for the investment. In reality, this will increase the value of the investment without actually holding the assets. It is crucial to note that margin trading isn’t recommended for everyone and comes with a high risk.
Let’s begin by asking: What does Margin Trading?
Margin trading permits traders to open positions using leverage. For instance, we took the margin position using 2X leverage. Our assets in base had increased by 10 percent. The position we held yielded 20% thanks to the leverage of 2X. Trades that are standard in nature come using a leverage of 1:1.
Margin trading is feasible because of the market for lending. Loans are provided by lenders to traders to allow them to invest more coins. Likewise, lenders benefit by earning interest on loans. In certain exchanges, such as Poloniex customers provide loans to the margin markets while in others the exchange itself offers the loans. For instance, in the Poloniex exchange, anyone can lend bitcoins or other altcoins, and earn accrued interest. The biggest drawback is that the currency has to be kept in the exchange’s account, which is less secure than an actual Cold wallet.
Costs and risks associated with margin trading
As previously mentioned the price of a margin position includes the interest on money borrowed (whether at the time of exchange or other users) as well as fees for opening a position through the exchange. The chance of earning more grows as does the chance of losing more. The maximum amount we can risk losing is that amount that we have invested in order to start the trade. This is known as”liquidation price. It is the amount that the exchange will use to instantly close our position. This means that we don’t lose any of the money that was loaned, but only our own cash.
Example: If we’re talking about trading standard leverage 1:1 liquidation is when the position is at an amount of zero. As leverage increases it will be closer to the purchase price. For instance, Bitcoin value is $1,000 We bought the same amount of Bitcoin (long) using leverage ratio of 2:1. The price of our investment is 1000 USD. In addition, we borrowed another 1000 USD. The value of liquidation for our position is less than 500 USD since at that point we will lose our original 1000 USD in addition to fees and interest. Margin trading is also against the market. We could also short positions using leverage.
Tips for trading on margins
Risk Management Risk Management – When trading margin, it is essential to follow the rules for risk management. Beware of greedy trading. Consider the amount you’re willing to take on, and keep in mind that it may be completely lost. Establish clear guidelines to close positions, take profits or setting the stop loss.
Be attentive Be attentive Crypto currencies are thought of as to be assets that have a high volatility. Margin trading in cryptocurrency increases the risk. Thus, it is recommended to create short-term leveraged trading positions. Additionally, even though the cost of a daily margin position are not significant however, over the long run the cost of fees could be an enormous amount.
Extreme fluctuations Extreme movements Crypto trading can have extreme fluctuations that happen from both sides (“Deep”). The potential risk here is that the deep could impact the liquidation value. This could occur when leverage is quite high, and the liquidation value is close. In reality, you could profit from these deeps and attempt to establish closing targets in the hope that the deep will cross them which will leave you with a profit , and then returning to the price you were at. Other tips to trade Bitcoin and Altcoins can be found in this article as well on this page.
Exchanges that permit margin trading
Today, it is possible to make trades on margins on a variety of exchanges. The benefits for leveraged transactions are obvious, and another benefit comes from the safety aspect. Crypto traders should try to reduce the number of money they have on exchanges. Exchanges are often considered to be the most targeted by hackers, and, in recent times, there have been several hacks of exchanges. The last major incident occurred during in the Bitfinix attack in 2016,. three-quarters of the exchange’s Bitcoins were taken.
The margin trading option lets us open larger positions without having to supply the Bitcoin needed, so that we will have less money in the account of exchange. In the example above the case where our portfolio consists from five Bitcoin and we are looking to protect ourselves against the threat of Bitcoin’s depreciation, a 10-X leveraged short positions is possible and would be equivalent to 40 percent in the Bitcoin portfolio. To open the position , the amount needed is just 10% of it (10 multiplied by leverage). So we’ll need only 0.2 Bitcoin. Thus, Bitcoins are stored safely inside cold wallets.
Bitmex The exchange Bitmex has earned a reputable popularity in just a few years and many traders make use of frequently (like the team we work with). The leader in margin trading, Bitmex offers 100X leverage margin trading both short and long. It’s easy to use and provides excellent customer support. Through our referral link you’ll get a 10% discount for the first six months on trading costs, when you sign up. Click here to view BitMEX’s trading video tutorial.
Plus500 Plus500The company Plus500 is a globally fully-regulated and regulated company. The trader who has Plus500 accounts Plus500 account is able to invest in CFDs Forex, Stocks, Commodities, Options and Indices. In the area of crypto margin trading , they provide Bitcoin as well as all major altcoins to trade margins (like Etherem, Ripple, Litecoin, Bitcoin Cash and other). The major benefit is the fact that they’re a fully regulated and licensed (Plus500 UK Ltd . is authorized and licensed through the Financial Conduct Authority FRN 509909) With 24/7 support and obligations for their millions of clients. You can sign up and immediately begin margin trading with a the credit card or bank transfer. The leverage for margin trading can be adjusted at 1:300. The starting process is simple since a demo account may be set up for free. click here to begin trading. Remember that when trading your money, you are putting your capital at risk.
Bitfinex The Bitfinex The Bitfinex exchange is the one that coordinates the biggest trading volume on the Bitcoin USD market and offers margin trading as high as an ratio of 3.3X. The interface is user-friendly and makes it easy to make transactions.
Poloniex The most popular crypto exchange. Leveraged trading for 11 Altcoins There isn’t BTC USD trade on margin. Leverage is only available at 2.5X. The interest rate is quite high when you short.
AVAtrade AVAtrade is a different world-wide acknowledged CFD exchange that allows the trading of Bitcoin’s CFD along with other significant crypto currencies. It is fully regulated and, like Plus500 the company also has an opportunity to try out a demo account for free.
Risk Management – When trading on margin it is important that there are clear rules of risk management, beware of excessive greed. Take into account the amount you are willing to risk, keeping in mind it can be lost completely. Set clear levels for closing positions, taking profit or a stop loss.