The Crypto market has been both in the good and bad books for its extreme volatility. But, while the volatility quotient makes some traders apprehensive of crypto the same volatility inspires a bunch of braveheart traders to sign up for crypto margin trading. Crypto trading is certainly not for the faint-hearted and it takes a mighty risk appetite to try your hands at margin trading. And, if the market swings in your favor, you will be rewarded with colossal returns. Just one thing- in margin trading you will have to borrow funds from a cryptocurrency exchange with margin trading. The borrowing part apparently looks slightly wild but if you are disciplined enough and strategic with your trading moves, “gains” will be yours. Check out more about Multibank.io.
The post below will discuss in detail the benefits of margin trading with a cryptocurrency exchange with margin trading. But, before that, let’s have a sneak peek into the core concept of crypto margin trading.
Overview of crypto margin trading
As it has been mentioned above, crypto margin trading involves trading with borrowed funds. Margin trading is also dubbed as leverage trading as here you trade with leverage (borrowed fund) over your own share of investment capital. Why do traders borrow funds for trading? Well, it’s simple- to open bigger trading positions. Higher trading positions bring in higher profits if the market takes an upwards swing. Crypto margin trading is applicable not just for long positions but for short positions as well.
Now, you need to remember a few aspects when it comes to crypto margin trading with a cryptocurrency exchange with margin trading.
- Margin- It’s the collateral that you will have to deposit cryptocurrency exchange with margin trading for borrowing funds. You will need to keep the margin intact to maintain your trading position with the cryptocurrency exchange with margin trading.
- Leverage- It refers to the funds that you will borrow from the cryptocurrency exchange with margin trading for margin trading. Leverage in margin trading can range from 2x to even 100x.
- Interest rate- As you will borrow funds from a cryptocurrency exchange with margin trading, you will have to pay interest for lending funds.
Let’s discuss the situation with a small example.
Let’s say, you can afford to allot no more than $10,000 for trading or investment capital. But, you want to open a higher trading position. In that case, if you opt for crypto margin trading, you will be able to trade with leverage and get extra funds from cryptocurrency exchange with margin. So, let’s say, you want to opt for 2x leverage that will give you another $10,000. Now, total trading capital immediately scales up to $20,000 that will allow you to open a higher trading position- than what was possible with your own limited share of $10,000.
Based on this calculation, if the market is approaching a bullish phase, you will make a higher range of profit with your leveraged fund than what was possible with your previous limited fund (the initial $10,000).
Benefits of crypto margin trading
Now, we have reached the central part of our article. Here are the factors that will show why crypto margin trading will be beneficial for your crypto trading journey.
Higher profits with limited funds
Crypto margin trading is your one-stop answer when you are aspiring for higher profits yet restricted by limited funds.
If you invest $100 in crypto trading and the asset price surges by 10%, you will make a profit of $10. This is the scenario in regular crypto trading.
In margin trading with a cryptocurrency exchange with margin, you have the leeway to ask for leverage. So, let’s say, you request for a 5x leverage on your same $100 trading capital. Now, in this case, if the market surges, you will make 5x profit (5 multiplied by 10 = $50) yet with just $100 from your own share.
Now, of course, you will have to pay the interest to the cryptocurrency exchange with margin for lending funds. But when you are making colossal profits, these interest charges are just nominal obligations.
Protection during bearish phase
Crypto margin trading with a cryptocurrency exchange with margin is not just about making high profits when the market is going upwards. Rather, margin trading also allows traders to reap profits even if the chosen asset price takes a dip- through short leverage trading.
Short leverage trading serves as a hedge and helps you to protect your portfolio when the market enters a bearish phase. Thus, crypto trading experts always advise to execute leverage trading on both long and short positions.
Crypto margin trading with a cryptocurrency exchange with margin will allow you to allot multiple assets for leverage trading collateral. For example, if it’s a Bitcoin-based leverage trade, your collateral options are not limited to BTC only. You can also use other crypto assets like ETH, USDT, BUSD, and so on. Bottom line is, there is a lot of flexibility when it comes to margin trading with a cryptocurrency exchange with margin when it comes to allocating the collateral
Summing up, margin trading with a cryptocurrency exchange with margin could be a highly rewarding experience, provided you make the right moves. Risk is crucial to aim for higher gains but when money is involved, you have to take calculated risks. Don’t forget, since you are trading with leverage, you could end up with catastrophic losses if the market takes a downward shift.
One way to check losses in crypto margin trading is to stick to a reasonable volume of leverage. Stick to a manageable level of leverage, say 2-10x maximum. Try to avoid the lure of 100x leverage as the crypto market can take a drastic turn any time. In that case, you might be left stranded with almost nothing if your stars are not in your favor.
Also, make sure to opt for a stop-loss order. The stop-loss order will stop you from making further trading once the asset price touches a pre-specified price.
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