Margin trading of cryptocurrencies on the exchange

Margin trading of cryptocurrencies on the exchange

The cryptocurrency market is extremely volatile, and many traders earn fortunes, and then “merge” everything. Margin trading is used to minimize risks and increase the chances of making a profit.

Therefore, today we will talk about what margin trading is. We will also analyze the trading rules, advantages and disadvantages, as well as platforms where margin trading can be used.

Sit back, it will be interesting.

The principle of margin transactions

Margin trading is a kind of speculation on the difference of buying and selling a cryptocurrency asset with the involvement of borrowed funds of the exchange (also called “leverage”).

Under the opening of the transaction, the trader allocates part of his own funds in different ratios. For example, 1:10 or 1:15, that is, one tenth or one fifteenth of the capital is given by the user. This amount is called margin.

By obtaining borrowed funds, a trader can multiply the profit from the acquisition and subsequent sale of a promising crypto asset.

Traders open two types of positions on cryptocurrency exchanges that support margin trading:

  • long –long) – the investor bets on the growth of the asset quotation;
  • short (short) – the trader predicts a fall in the exchange rate.

The income of the user who predicted the trend movement in one direction is proportional to the size of the leverage.

For example, a trader deposits $1000 to the trading platform and opens a long position with a leverage of 1:10. The position opens at $10,000. If the price of Bitcoin or another asset has increased by 1%, then the user receives a profit from the transaction amount, that is, $ 100. After closing the transaction, $1100 will be credited to the account. If the trader did not use leverage, then his earnings would be a minimum of $10.

Please note that many exchanges charge commissions for trading operations in accordance with the rules of the site.

There is also a reverse side of the coin. The exchange sets the liquidation price when the position is automatically closed when the price reaches a certain mark. If the Bitcoin price drops to $9500 with an open long of $10,000, the systеm would automatically close the transaction, taking the user’s margin for itself.

Therefore, it is not necessary to use all the funds in the account for trading with leverage. It is more reasonable to let a part of the deposit into a risky enterprise so that it is possible to average positions and smooth out possible losses.

It’s important to know!

In classical leverage trading, the systеm should notify the trader about insufficient margin and the risk of canceling the position if he does not make a security payment (the operation is called a margin call). However, in cryptocurrency pairs, volatility is extremely high, so the term margin call is used by crypto enthusiasts when the margin is directly liquidated.

If everything is clear with this so far, let’s consider the basic trading rules that will increase profits and reduce the likelihood of losing funds.

Basic trading rules

  1. Margin trading is an analogue of credit, so you need to be careful about this tool. Without a serious level of trading skill, the risk of margin loss is high.
  2. A cryptocurrency asset for margin trading is selected based on its volatility. The transaction is opened during the period of the minimum chance of the appearance of sharp jumps in quotations on the market.
  3. On some exchanges, it is possible to change shoulders on the fly. If the transaction has already made a profit, and the trend does not plan to change, you can increase the leverage to maximize earnings.
  4. To reduce losses from a liquidated position, it is possible by purchasing additional contracts.
  5. If you see that the quotes are too volatile, you can exit the transaction with minimal losses due to manual adjustment or automatically set stop loss.
  6. Do not invest all the money in the account in the transaction – it is more profitable to diversify funds for averaging positions later.
  7. A beginner should not “buy” large amounts of leverage. It is better to start with 1:2 or 1:3 ratios in order to “fill your hand” and understand the principles of margin trading.
  8. Be prepared for the unpredictable movement of quotations due to the high volatility of the cryptocurrency market.

These tips will help to avoid the mistakes of “hamsters”, and not to drain the initial budget on the mistakes of beginners. And we’re moving on.

How to determine the moment of liquidation and how to avoid it in cryptotrading

Experienced traders always recommend setting a stop loss when opening a trade. This is an automatic limit for closing a position when the price reaches the minimum allowable mark.

This is useful so that the margin is not automatically liquidated by the exchange if the price tag for a cryptocurrency asset drops to a minimum.

It is quite difficult to determine the moment of “helicopters” on the market, and for many this phenomenon remains unpredictable. If you do not want to monitor the trend around the clock, it is better to set the minimum position in advance at which the transaction will be opened, thereby reducing the probability of losing the entire margin at times.

Let’s talk about the strengths and weaknesses of trading cryptocurrency with leverage.

Advantages and weaknesses of margin trading with leverage

Like any financial instrument, margin trading has strengths and weaknesses.

Advantages Disadvantages
The popularity and prevalence of the tool on cryptocurrency exchanges A trader needs a serious background to master trading
It is possible to make a profit many times greater than personal capital allows High risks of losing margin and funds in the account due to the high volatility of the cryptocurrency market
Margin trading improves trader skills

If everything is clear with this so far, consider trading platforms where trading tokens with leverage is implemented.

What popular cryptocurrency exchanges with margin trading support exist

There are several popular platforms for trading cryptocurrencies on the market:

  1. Binance is the most popular cryptocurrency exchange on the market, which entered the market in 2014. The platform has a leverage of up to 1:100. You will have to pay up to 0.075% for closing the order.
  2. BitMEX – there are more than 100 tokens for buying and selling on the exchange, it is possible to open a position with a ratio of own/ borrowed funds of 1:10. The platform’s commission is 0.1%. It can be reduced by using the internal token of the exchange.
  3. Poloniex – the developers of the platform have added more than 200 cryptocurrency pairs, and trading with leverage up to 1:2.5. An excellent exchange for novice traders and at the expense of a minimum commission of 0.007%.
  4. Bitfinex is a Chinese exchange established in 2012. Trading with x5 leverage is available to users. The platform’s commission is no more than 0.2% of the transaction amount.

Let’s briefly consider the criteria for choosing a crypto exchange for trading with leverage.

Criteria for choosing a crypto exchange for margin trading

Experienced traders identify the following factors when studying crypto exchanges for margin trading:

    1. Availability of analytical tools for conducting high-quality technical analysis when studying a digital token for margin trading.
    2. The exchange should implement two-factor account authentication, and a systеm of additional passwords to protect assets and personal information.
    3. The presence of positive reviews – yes, everything is sold and bought online, but a really high-quality exchange for trading with leverage will be already popular with traders.

platform should have assets with high liquidity and a large user base on the exchange so that you can close or open a position on the crypt at a good price at the right time.

  • The commission on the exchange should not exceed 0.2%.
  • Withdrawal of funds from the account should be fast and transparent, without unnecessary bureaucracy and pitfalls. Therefore, study the rules and nuances of the process in the FAQ section of the exchange or in open sources.


Margin trading is an opportunity to quickly make a fortune at the expense of borrowed funds. Everyone in the world would already be millionaires if it weren’t for the high volatility of the cryptocurrency market. Therefore, trading with leverage is a high-risk tool that is suitable only for experienced traders.

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