Bitcoin and Altcoin Margin Trading – A Beginners Guide
Margin trading is an exciting concept. Crypto-traders are becoming increasingly aware of the idea and how it can be beneficial to their investments. It, in fact, increases investment amount without holding back assets in any way. We must, however, mention that the concept of margin trading poses a high level of risk and as such is not something for everybody. Let’s examine what margin trading is.
Margin trading gives traders an unequivocal opportunity to open a position with leverage. It is worthy of note that standard trades get completed with a leverage of 1:1.
The existence of a lending market joins to create a possibility for margin trading. The crypto-market works in a symbiotic manner where traders get loans from lenders to be able to invest more in better coins. The lenders will, in turn, get a claim to interest on a loan – it is a win-win situation.
While many exchanges provide the credit by themselves to the margin market, a few exchanges like eToro favors users to make the provision. For instance, any user of the Poloniex exchange can choose to give out a loan of their bitcoin to interested people.
Cost and Risk
Like every other form of trading that is beneficial, margin trading comes with its coat and risks too. On the cost, payment of interest and opening fees top the rank. On the risk aspect, chances to lose more tend to increase as the chances to earn increases although you can’t lose more than you invested into opening the position. The highest level of loss is called the liquidation level and is the point where you lose up to the amount you invested. At this point, the exchange closes your position to save you from losing loaned money.
Margin Trading Tips
Risk Management – As a margin trader, understanding and managing risk is very important. Beware of being excessively greedy. That is, invest only money you can afford to lose, knowing that success comes with a 50/50 chance and you can lose your investment altogether.
Watch Closely – Savvy business owners are good watchers. As a margin trader, you have to learn to observe and know when daily factors are pointing towards potential loss.
Extreme Movements – Crypto trading is characterized by some extreme fluctuations. These fluctuations can come in any direction (“DEEP”). As a player margin trading, you must learn to understand each position and know how to leverage on each to maximize profit.
Exchanges Enabling Margin Trading
Most exchanges now feature trade margin. By now, you already understand the benefits of leveraged trading. You know the security risk of trading on exchanges, especially since they’ve become a hot target for hackers over the past few years.
By trading on margin, you are allowed access to more positions, without actually needing to provide the required amount of Bitcoin.
Although with its own risk, margin trading has still proven to be a very profitable aspect of crypto trading. It is highly recommended that you do proper research and fully understands the concept before diving into it.