How Margin Trading Works In The Global Cryptocurrency Markets

Margin Trading

You need to know that cryptocurrency trading is as risky as it is rewarding. So, you to be informed enough and have complete knowledge about it before investing money in it. Margin trading is an important concept that can double your profit or can even take away all your investment from you.

Margin Trading involves borrowing money or cryptocurrency on behalf of your existing number of cryptocurrency to buy additional amount. The process is an old age method that was born in the US and is popular now in various exchanges around the world.

Initially used in traditional trading, it is now incorporated in cryptocurrency and is also termed as margins or leverage trading. In traditional markets, there are various complicated rules but cryptocurrency margin trading has simple rules. The core principle is the same for both.

Suppose you have $1000 but you want to make an investment of $2000 in BTC. Now you need to get extra $1000 that you can borrow through the 2:1 margin (meaning for every dollar that you have; you will get an extra dollar for investing).

 If the BTC price raises by 50% then your investment now has a worth of $3000 and you can easily pay back to the lender the borrowed $1000, and still have $1000 profit. On the other side, if the prices decrease by 50% your $2000 investment will reduce to $1000. 

Now, the lender will have the first right to be protected and claim that $1000 given to you. So, now your initial investment of $1000 is also gone and you have nothing left.

In this way, margin trading can be highly rewarding but at the same time, it is also very risky. Therefore, it is not recommended unless you have complete knowledge and realization of the procedure, and all the risks involved.

What You Need To Do

Some brokers and lenders provide money or BTC to individuals, whether free or at some interest rate.

 As soon as the margin trader's profile starts appearing poorly performing according to the terms and conditions, the brokerage guys automatically close that position and refund the money so that they get their principal as well as interest amount first. 

But if the portfolio keeps performing well, the lender keeps getting the fixed share constantly. That is why its other name is Leverage Trading.

For Leverage Trading 50:1 means you require $2000 of BTC if you have to buy order with a $100,000 worth, and 400:1 means you need $250 to buy a $100,000 worth order.

Various margin trading facilities allows access to crypto exchange and trading options for cryptocurrency. Some of these are Deribit, BitMax, Kraken, Binance, BitMex, and Huobi.

Conclusion

Always keep in mind than Margin Trading is not for newcomers or experimenters. You need to have a comprehensive understanding of the phenomenon as well as the cryptocurrency world and phenomenon. 

To avoid extra loss, stick to the basic principle, i.e. lend as much as the loss you can bear. Lending and investing within the limits you can afford will save you from getting bank corrupt.