What is Cryptocurrency Margin Trading? Beginner's Comprehensive Guide 2018

What is Cryptocurrency Margin Trading? Beginner's Comprehensive Guide 2018

in Cryptocurrency

Margin trading is a way of investing money with money you borrowed from a broker or exchange. 



  1. What is Margin Trading?
  2. Short and Long positions
  3. Trading vs Margin trading
  4. Margin Trading Risks 
  5. How to start margin trading
  6. Cryptocurrency exchanges for margin trading
  7. Final words


However, there are some terms you should know to understand margin trading and financial columns. 


Let's imagine you buy Bitcoin or any other cryptocurrency on an exchange. This amount of Bitcoin you hold is called a position


margin trading


Moreover, you can now increase the number of your crypto coins borrowing a certain sum of currency from an exchange. The process of amplifying is called a leverage. For example, you invested $50 and borrowed another $50 from an exchange. That means you 2x (2:1) leveraged your profit/loss.   


So, margin trading is a process of leveraging your position on an exchange. 




When you just invest in cryptocurrency the $100, the money comes to your cash account. Once you leveraged your position the account turns to the margin account. 


Who pays if you lose the money you borrowed? You! How? With the money you invested. For example, you invested $200 at 2x leverage, so the total amount you invested is $400. Supposing, the position went down 50 percent. In this case, the exchange would close your position and you would have lost all your money. The value of the crypto money you invested in and the crypto exchange automatically closed is called a liquidation value or a called in position. In a similar way, if the position went up 50 percent, you would have gained $400 in total. $300 of them are yours and $100 - borrowed. 



Short and Long positions

If the price of the cryptocurrency you are investing in goes up it is called a long position. Imagine your leveraged position was $200 in Bitcoin. The price of Bitcoin went up 10 percent. Now your $200 worth $220 and you earned $20. 


The short position principle is different. Supposing you knew the Bitcoin price would go down 50 percent. You open 2x leveraged short position with $200, tell the exchange to sell some money you borrowed and buy them later again. If the Bitcoin price really went down 50 percent, you would earn $400 in total. If it, vice versa, went up 50 percent you would lose all your money and the exchange would close your position. 


short and long positions



Trading vs Margin trading

You may have already understood the difference for yourself but let's underline it anyway. 


Usual trading means you purchase or sell using only your own crypto money and the gains or losses you will have will multiple according to that sum. If you have 1BTC worth $7.000 you can trade only this amount of money, so all the losses and gains will be counted from that sum. 


Margin trading means you can use the amount of money that exceeds the amount you invested in. However, the losses and gains will also depend on that sum. Let's take that same 1Bitcoin worth $7.000 you invested in. You invest 1BTC at 2x leverage so you now have 2BTC or $14.000 and all your profit or loss will multiply by 2. 


margin trading vs trading



Margin Trading Risks 

Investing in cryptocurrency is a risky business. Margin trading cryptocurrency is even riskier because of the same reason - cryptocurrency volatility. The more leverage you take the more risk you will lose everything you invested in.


For example, if you invest $250 at 4x leverage you will lose all your $1000 when the position goes down 25 percent unless you put more money. But that is the rabbit hole that loses people funds. There are a lot of stories how people couldn't stop and lost everything. Which is more, there is a possibility that a crypto exchange won't call in your position when you reach the liquidation value knowing you have money in your crypto exchange wallet and will take money from that funds. So, never leave the computer until you are sure you closed your position. 


Besides, cryptocurrency market is not regulated, and the crypto exchanges are not regulated as well. The price manipulation here is more likely than on the stock market.


Margin trading risks



How to start margin trading

  • First of all, find a good crypto exchange.

There are plenty of them but you will need to find the one with a good reputation. Do thorough research on the internet, read the overviews, people reviews on forums and various feedbacks.


  • Deposit money into your account. 

Again, it depends on your choice and research what cryptocurrency or fiat you will take. 


  • Choose a trading pair

And make sure you get the maximum profit. 

how to start margin trading



Cryptocurrency exchanges for margin trading

Bitfinex crypto exchange


The crypto exchange is one of the most professional exchanges on the cryptocurrency market. It is so professional that prevent new unexperienced traders from registering until they deposit their account $10.000. Which is more, the verification here is rather long - up to 6-8 weeks. Well, nevertheless, they say a cryptocurrency specialist will enjoy the tools. 


 Margin trading assets:

  1. Bitcoin (BTC)
  2. Litecoin (LTC)
  3. Ethereum (ETH) 


Leverage: up to 3.3x (3.3 : 1)



  • Platform borrowing
  • Open a position 


binance crypto exchange


Binance exchange is a good choice both for beginners and professionals. Low fees, an incubator installed, tons of altcoins and a lot of other useful tools and options. 


 Margin trading assets: 

  1. Bitcoin (BTC)
  2. Litecoin (LTC)
  3. Ethereum (ETH) 
  4. NEO 


Leverage: coin to coin


etoro crypto exchange


The Cyprus-based cryptocurrency exchange has the largest financial trading community. The eToro's account allows users to test the platform without financial obligations and an initial deposit of up to $100 thousand in cryptocurrency. 


Margin trading assets: all, except for Bitcoin (BTC) and Ethereum (ETH) 


Leverage: up to 4x




The London-based crypto exchange allows trading worldwide. CEX.IO is also a cloud-mining provider and has a mobile app. 


 Margin trading assets: 

  1. Bitcoin (BTC): BTC/USD, BTC/EUR
  2. Ethereum (ETH): ETH/BTC, ETH/USD


Leverage: between 1:2 & 1:3


bitmex crypto exchange


Bitmex trading platform operates with the trading volume of over 35,000 BTC and over 540,000 accesses monthly. The crypto exchange accepts only Bitcoin deposits. 


 Margin trading assets: 

  1. Bitcoin (BTC)
  2. Altcoins 


Leverage: up to 100x


poloniex crypto exchange


The crypto exchange is a good choice for everyone who is looking for altcoins. However, it is not a place where one should make his first deposit. 


 Margin trading assets: 









Leverage: 2.5x


Final words

As I already mentioned, cryptocurrency margin trading is a very risky business. If you have been trading for years, understand the crypto market as an alphabet - try it, why not? Just consider the risks. 


For newbies, I will advise not to jump into margin trading for a while, until you understand the cryptocurrency market mechanisms like the back of your hand. Remember there are no any guarantees of your funds' safety. Use stop-loss and take-profit orders, create an effective trading plan. Try small sums for a start and don't forget to close your positions! Good luck! 


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