Margin crypto trading is a prominent term in the trading community. It is an advanced crypto trading strategy that is opted by a vast audience.
It offers some major benefits to the traders as they can trade with more funds than they own.
Even though, this sounds appealing and certainly has its benefits, there are a few risks that come with it as well. Therefore, it is important for every crypto trader to know the major details about the trading strategy to fully understand the concept before you begin.
This is a brief guide of margin crypto trading for beginners that sheds light on all important aspects crypto traders should know.
Overview of Margin Crypto Trading
As mentioned above, margin trading is an advanced trading strategy. This strategy allows the traders to open bigger trading positions by borrowing funds from the brokers. The borrowed amount is called leverage, therefore, it is also referred to as ‘trading with leverage’.
Opening bigger trading positions means that the chances to get high profits can increase significantly. However, it solely depends on if the trade goes well. If the trade does not go well, you can also experience huge losses.
Therefore, margin trading is a venture that comes with the possibility for high rewards, accompanied by high risks.
It is also important to keep in mind that the leverage ratio offered in the market is not fixed and varies from one exchange to another. Based on this information, the leverage ratio you can opt for ranges between 2x to 101x.
Different Margin Trading Positions
Learning about margin crypto trading requires the interested parties to know about the different types of margin trading positions. There are two types of margin trading positions you can open, as are mentioned below with detail.
A long position is like betting in favor of a digital asset, let us suppose Bitcoin. This type of trading position is opted by people who are positive about the price surge of an asset in the future.
For instance, if you take up 20x leverage for BTC and open a long position then you will get double the profit if its price would surge 5%.
A short position is like betting against a cryptocurrencies and is opened by people who believe that the price of an asset will drop in the future.
For instance, if you opt for 20x leverage for Bitcoin and you open a short position then you are likely to get double of what you invested if the price of the asset falls 5%.
Crypto Assets to Trade with Leverage
There is no shortage of digital assets in the market but they greatly vary in terms of market cap and overall value. There is also a lot of volatility associated with the crypto space and unpredictability surrounding the price movements of the cryptocurrencies.
While some crypto assets are easier to keep a track of, others are not. Therefore, choosing an asset to trade with leverage can be difficult without proper information.
This is why, this brief guide of margin crypto trading for beginners specifies that the best assets for margin trading are the one that are more stable and have a higher market cap than others.
Exchanges to Choose
There are several exchanges that support margin crypto trading. However, they all vary in terms of the features offered and most importantly the leverage they offer.
Therefore, apart from looking at the leverage they offer, you should also take a look at other features and opt for the one that seems most suitable to your trading requirements.
Some of the popular and best platforms to choose for margin trading are:
Important Terms to Keep in Mind
While learning about margin trading, it is also crucial and helpful to learn about the major terminologies that are mentioned below.
The broker calculates the liquidation price by keeping in view the margin and leverage of a user. For long positions, if the price drops to the liquidation price and for short positions, if it rises to the liquidation price, the traders lose all their funds.
In margin crypto trading, take-profit is triggered when traders are in profit. You can set this manually and it will be triggered when you have reached the limit you were aiming for.
This function is used to ensure that the traders are not losing more funds than they can afford. You can set a value for stop-loss order and if the price of an asset drops below that point, the trade is automatically closed.
This function allows the traders to open a new trading position if the price of an asset rises above or falls below a set value.