The trend of leveraged crypto margin trading has set new records consistently throughout the year 2021. The crypto market was very high in April, resulting in huge profits for traders. Prices soon fell again and it was not the same, visit us!
Whatever level of expertise you are at market research or the skills you have however, borrowing money is risky. Therefore, it is essential for you to know all regarding margin trading, and what are the risks involved.
What is margin trading ?
Margin trading involves trading with borrowed money or leveraged funds. In order to get a loan, you require the margin or collateral first. It is like a deposit that is governed by your exchange until you’ve repaid the loan amount. As per the regulations of the crypto exchange, you can borrow some times the amount of capital you’ve invested. it is the ratio of what you have invested versus what you take out is known as leverage.
In order to begin leveraged trading within traditional markets traders need to interact with brokers. Margin trading is much easier when it comes to cryptocurrency. Anyone can profit from the centralized or decentralized platforms that lend leverage and makes the process much easier. When you leverage trade, the potential profit margins are higher, but while doing so there is a chance that losses could be much greater.
What is margin trading? How does it work?
Leverage trading in Bitcoin or any other cryptocurrency allows traders increase the potential of their earnings by giving them leverage ranging from 5x to 100x the amount required. BitMEX is one of the best platforms that offer trading with leverage who trade in various cryptocurrency.
Margin trading transactions are classified into two different categories. one is long while the other is short. In a long position, the trader buys an asset at a bargain price in hopes that they can sell it later for more value. On the other hand the short trade is the exact opposite. The trader sells the product in the hopes of acquiring it back later at lower cost.
In both instances the trader gains from the difference in the price of the crypto asset at the moment of the opening or closing of any position.
Let’s look at this using an example
If you want to invest $10,000 in a cryptocurrency, such as Bitcoin with 1:10 leverage with a margin of 10%, you would only have to invest $1000.
It’s necessary to put $10,000 in unleveraged cryptocurrency trading. This is quite a lot greater. If the value of Bitcoin increases, however your profit margin stays the same.
That is, when leverage trading Bitcoin requires less money is needed to make the exact same profit. Of course, it’s worth mentioning that the opposite is possible if the value of Bitcoin would decrease.
If you think Bitcoin is going to appreciate in value soon. In order to profit from this, you should open long positions with 10x leverage and a margin of $1000. The position is then equated to $10,000. The $1,000 profit will result from a 10% rise in BTC price (minus the fees associated with it).
Return on Equity (ROE) is 100%. If you do not leverage your position, your profits would be just $100 at an ROE of 10%. Cross Margin and Isolated Margin
BitMEX utilizes two different ways of trading margins:
Cross Margin
Isolated Margin
On the platform for exchange, you are able to toggle between one option and the other, by adjusting the slider for leverage on the ‘your position’ box located on the left part of your trading section.
You can use cross leverage by moving the slider left, and you can use isolated leverage for the other numbers as (2x 3x, 4x, 5x, etc.)
Keep in mind that the leverage you are using isn’t going to multiply your position automatically. As you move the slider it’ll change the amount of space is available. This means that you have to
Modify the amount manually