Margin crypto trading is a popular trading strategy that offers good opportunities, accompanied with high risks. This strategy is opted by many crypto traders in the community. However, it is not as simple as one might think.
There are several aspects of margin trading that traders should know so they can avoid the unnecessary risks and have a good and pleasant trading experience.
The more you know about margin trading, the easier it can be for you to determine if it is something you can opt for or not. This brief article is a guide for margin crypto trading for beginners that sheds light on all the major aspects of this complex concept.
Defining Margin Crypto Trading
As mentioned above, margin trading is a well-known trading strategy that is opted by a vast audience. This is a trading strategy that is also referred to as “trading with leverage”.
In margin trading, the traders are allowed to borrow funds from the brokers. The borrowed amount is called leverage and allows the traders to open bigger trading positions as compared to the ones they would have opened if they only used their funds.
Borrowing the funds enables the traders to open bigger trading positions, which can then result in high profits or high losses. This solely depends on how the trade goes.
In other words, the benefits are never guaranteed. Margin trading is a risky strategy because it offers risks and rewards hand-in-hand. It is also important to know that higher the leverage, higher the risk you face.
How to Choose an Exchange for Margin Trading?
One of the most important details to know as a potential margin trader is which exchange they should opt for margin crypto trading.
There are hundreds of cryptocurrency exchanges in the industry. However, not all of them offer services that may seem suitable for you. Another difference is the leverage ratio offered by each exchange.
In the crypto market, you can get leverage ratio as low as 2x or as high as 101x.
Therefore, margin crypto trading for beginners, requires the traders to know how much leverage they want to opt for and choose a platform accordingly.
How Margin Trading Works?
Before you begin trading cryptocurrencies with leverage, it is important to get a proper understanding of how it all works.
The best way to understand such a complex concept is to consider an example.
Let us suppose that you are a trader and you want to leverage trade Bitcoin. If you opt for 10x leverage for BTC and its price surges 5%, you will get 50% profit. The same would be applicable if the price of the crypto king surges 10%, you will get double the profit.
While this is exciting and interesting, it is important to know that you will lose funds the same way if the price falls 5% or 10%.
Which Crypto Asset to Trade with Leverage?
Another important aspect that needs to be explored and properly understood before margin trading is opted for is which crypto assets should be chosen to trade with leverage.
The crypto market is associated with a lot of volatility, which means that the price of the flagship digital asset also fluctuates unexpectedly sometimes.
Therefore, if the traders do not carefully choose an asset for margin crypto trading then they can have an unbeneficial trading experience. This is why, it is important for traders to know that they should choose digital assets that are stable than others and have higher market caps as well.
Different Margin Trading Positions
This guide for margin crypto trading for beginners also sheds light on the different trading positions that you can open when you are trading with leverage.
The two types of margin trading positions you can open are as follows:
- Long Position
- Short Position
Long Position
Placing a long position while leverage trading an asset is similar to betting in favor of an asset. This would mean that if the price of the asset rises you will get more profit.
A long position is opened by a person who is confident that the price of an asset will increase. In this case, if you opt for 20x leverage for BTC and its price surges 5% you will make 100% profits.
Short Position
Placing a short position is like betting against a digital asset. This is opted by people who are not confident that the price of an asset will surge.
Therefore, a short position means that if you opt for 20x leverage for BTC and its price declines 5% then you will be able to make 100% profits.
Conclusion!
Margin crypto trading is a popular trading strategy that is opted by a vast audience. If you are interested in trading with leverage, then you need to know the details of the concept and understand it fully first. The above-mentioned information can be quite useful and important for all traders.