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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.
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