Margin trading is a type of asset trading using funds provided by a third party (exchange or broker). Traders borrow money from the crypto exchange using their own money as collateral. When the trade is over, the user brings the borrowed money back to the exchange. Standard transactions have a leverage of 1: 1. However, you can increase the size of your position up to 200 times (only on some exchanges).
It’s obvious that the more you invest, the more gains you may reach. That is why through margin trading you can quickly earn much, even if you have only $100 that you can afford to invest. But do not forget that reinforced transactions usually result in either higher profits or more significant losses.
There are many ways to earn via margin trading. Even in the bear market, traders can get profits through short positions. Of course, price movements create opportunities to earn profits out of buying and selling cryptocurrencies. But be sure that you understand the market behavior and use different types of orders which helps to secure the funds. Never forget that investing via margin trading is associated with risk. Before making decisions, be ready to do your own research on the market and the actions you are interested in.
If the market trend is opposite to your belief, you will receive a margin call from the exchange. It happens when the price hits a certain point where trading starts to be too risky to continue with the same collateral and leverage. A margin call is a helping hand from the exchange requiring to increase the collateral. If it is impossible the position gets liquidated. If the additional collateral doesn’t help, the position gets liquidated, also.
Profits and losses in margin trading are higher that’s why it’s important to use the exchange with high liquidity. Also, a great opportunity gives you Demo Mode, as you can get your experience on how to trade with the leverage and try margin trading without investing real money.
Now let’s have a look at some of the most convenient cryptocurrency exchanges that provide a margin trading option.