Any crypto trader who wants to dive into trading should be familiar with margin crypto trading as well. This is a popular and advanced type of trading that is opted by many traders in the community. The significance of margin trading is that it allows users the opportunity to get good profits. However, a major note that requires the attention of new traders is that the profits are never guaranteed and margin trading presents a high reward high risk scenario.
It is, therefore, important for new traders to learn as much as possible about the concept and then determine if they are well-equipped to start margin trading or not.
The information mentioned below is regarding margin crypto trading for beginners. This brief guide presents helpful and important information for the traders.
Understanding What Margin Crypto Trading Is
Margin trading is also called leverage trading and is a well-known trading strategy widely used by traders all around the world. This strategy not only presents the opportunity to get good benefits but is also accompanied by high risks.
However, anyone interested in margin trading can have a better chance at a good trading experience if they have some relevant and helpful information about the concept.
This trading strategy allows traders to borrow funds from brokers and place bigger trades as compared to the ones they would by only using their funds. The borrowed amount is called leverage and varies from one exchange to another. This trading strategy is also referred to as “trading with leverage”.
More details of the margin crypto trading for beginners are mentioned below.
How Margin Trading Works?
Borrowing funds and opening bigger trading positions may sound interesting but it comes with high risks, especially for those who lack information about the concept.
Therefore, if you are interested in opting for margin crypto trading, you need to know how it works.
As mentioned above, the leverage amount a trader gets varies from one exchange to another. Considering this the leverage available in the industry is as low as 2x and as high as 101x. This means that you would have to choose an exchange carefully.
Now it has been established that the higher the leverage, the higher will be the risks. However, before you begin, you need to have funds in your margin account, based on which you will get the leverage.
Now let’s consider an example for margin trading to get a better understanding of how it works.
Example of Margin Trading
Let us suppose that you are trader and have opted for 10x leverage for Bitcoin. If the price of BTC surges 5%, you will see a profit of 50%. Similarly, if the price surges 10%, you will see double of what you initially invested.
However, this can also work against you because if the price of BTC falls 5% you will lose 50% and 100% if BTC’s sees a price drop of 10%.
Crypto Assets to Trade with Leverage
Learning about margin crypto trading also requires the users to know about which cryptocurrencies can be traded with leverage. Since the market is known to be highly volatile, the prices of digital assets often fluctuate quite unexpectedly. In such a case, margin traders can suddenly lose more than they anticipate, which may cause them to have a stressful trading experience.
However, this guide of margin crypto trading for beginners, specifies that margin trading is only suitable for digital currencies that are somewhat stable than others and have a higher market cap.
Therefore, if you are interested in trading with leverage, you should opt for digital assets such as Bitcoin and Ethereum and other high market cap coins.
Two Types of Trading Positions to Know About
There are two types of positions you can open if you opt for margin crypto trading. They are mentioned as follows, along with some of their details.
The Long Position – this is for people who are optimistic about the price surge of a digital asset in the future. Such traders can open long trading positions. This means that if the price of an asset rises 5% and you have opted for 20x leverage then you will gain 100% profits.
The Short Position – this is for traders who bet against a crypto asset. This is opted by traders who speculate that the price of an asset will fall. This means that if the price of an asset drops 5% and you have opted for 20x leverage then you can get double the profit.
Suitable Exchanges Supporting Margin Trading
There are several exchanges that support this type of trading. However, following are some of the popular platform for margin trading crypto for beginners.
- Binance Futures
Margin crypto trading is a high-risk concept that requires the traders to be mindful of several factors before they opt for it and begin. As a new trader, it is important for you to know the details mentioned above before you start trading.