Is Crypto Margin Trading Good Or Bad?

Trading on Margin, is it good or bad? Under what condition would it be considered as good? When market is at its peak or there is a dip? That’s the dilemma faced by many traders and investors who want to sail in the world of Margin, but is it good or bad? Let’s explore about the good and the bad of crypto margin trading in today’s post –

An individual borrows capital from the lender so as to invest and buy more assets/cryptos. The individual gets leverage, where he is [based on his analysis and intelligence] making a bet that his returns on the investments made on margin are going to be higher than the interest he needs to pay his lender, excluding fees for now. Point to note that the lender uses your cryptos in your crypto wallet as collateral so as to satisfy your margin. So margin could also be termed as debt.

The Good of Crypto Margin Trading

#1- Margin could help you in fulfilling “sudden capital requirement” or emergency

In need of some urgent capital? Then considering market sentiments, it could be a good idea to invest in Margin Trading. Borrowing capital at this stage based on your analysis may turn towards profit, start investing and in a few days once you make a profit you can cover your margin.

#2 – Margin could help in fuelling other investments of higher returns

There is this dream project you want to start off, or the market is just going as per your predictions and based on your analysis you feel investing more for higher returns, but not enough of it? Then Margin could help you in borrowing that money and reinvesting to get positive returns. Go ahead and use margin to start your position.

The Bad of Crypto Margin Trading

#1 – Margin is bad when you invest in cryptos that yield lower than your margin interest.

Although crypto margin trading is available for only selected cryptos, still it is wise to know which ones are the best to help you earn a positive ROI.

#2 – Margin is bad when you use it as a down payment for some other debt

Do not open Margin to use that capital in any other form of debt, that’s the riskiest venture. Take it this way you are already paying a margin interest on the borrowed amount, using it to get another debt is again starting a new cycle of interest payments and because you wouldn’t be earning any returns on your second investment in case your margin trade results in a loss, it means no capital to pay interest of second debt as well.

What are your stories of Good and bad in crypto margin trading? Would love to know them. Please share your feedback with us @getnuo , our twitter handle.

References

goodfinancialcents, nerdwallet

October 31, 2018

BitGo Crypto Wallet Integrates Digix’s Gold-Backed Cryptocurrency

BitGo’s that attracted players for their patented multi-signature wallet technology is partnering with Digix to bring their DGX gold backed stablecoin. Digix that digitizes physical gold in a secure and trustless manner by backing every DGX by one gram of gold from London Bullion Market Association-approved refiners. The startup is adding compatibility with a gold-backed token whose value is not subject to the wild volatilities of the cryptocurrency world or foreign exchange fluctuations. The integration of Digix also helps deepen liquidity of its ecosystem that currently support 85 cryptocurrencies. This stable-price coin is particularly useful for payments, loans, and anything that requires a more stable store of value.

MapleChange Crypto Exchange Hacked

Ledn, First in Canada to Offer Crypto-backed loans.

As per a post on twitter an exchange MapleChange said – that “due to a bug,” an unnamed group of individuals managed to withdraw funds, adding that it is conducting a “thorough investigation” and will be unable to make refunds.”

After the “investigation,” MapleChange decided that it would be unable to pay its users back, divulging that “the exchange has to close down, unfortunately. This includes all our social media.” While the first part of the statement is logical, the second comment led many to raise their eyebrows, so to speak, in suspicions that this hack isn’t cut and dried.

Japan’s Financial Services Agency limiting caps on Crypto Margin Trading?

Japan’s Financial Regulator Discussing Caps on Crypto Margin Trading

Japan’s regulators are considering stricter limits on margin trading of digital currency as reported by Nikkei. To curb speculative trading and limit user exposure to volatility risks, Japan’s Financial Services Agency is considering leverage caps for margin trading of cryptocurrencies.

The push to regulate came in response to concerns by many users. With a theft with Coincheck early this year FSA received a lot of inquiries, and this move is just to reduce risks and improve user protection.

How Crypto Wallets Play a Vital Role in Crypto Margin Trading

Crypto Wallets are the essential part of crypto margin trading. These crypto wallets are provided by the crypto exchanges are used for trading leveraged short and long positions and for providing margin funding/financing to other traders. The funds are instantly transferred from one wallet to another assisting is a smooth trade. So what else does the crypto wallet help with, the Margin Traders? Let’s explore about Crypto Wallets and their place in Crypto Margin Trading

What are Crypto Wallets and How it works?

A cryptocurrency wallet or Crypto wallets is a software program that stores the public and private keys, interacting with different blockchain to allow individuals to send and receive digital currency and view their balance. If you are keen to use any digital currency, one of the prerequisites is to have a crypto wallet or digital wallet.

The working of cryptocurrency wallet cannot be compared to a physical wallet. The crypto wallets do not store currency, unlike the wallet you carry in your pocket. When an individual sends a digital currency to say ETH, he is actually signing off his ownership from that coin and assigning new ownership address of yours. To access these coins and spend it or use it for crypto trading the private key that is assigned to you should match the public key available for ETH. Once the match is made, the account balance would increase and that for the sender would decrease. There is no real exchange of coins, only a transaction record on the Ethereum blockchain and a change in account balance of the sender and receiver.

Crypto Wallets in Crypto Margin Trading

In the market, many types of crypto wallets available are categorized as Software[subtype – Desktop, mobile and online], Hardware, Paper wallets. Each of them differs in a way they are accessed and utilized.

But the most crucial categorization of wallets for margin traders is Hot wallets and Cold storage. This could be applied to any crypto wallet. Both of the strategies are a measure of tightening the security by exchanges to safeguard funds from hackers. Both cold storage and the hot wallet are security measures put in place by exchange platforms to safeguard user funds from any mishap.

Cold storage wallets are wallets that are offline most of the time and can be accessed only when the user wants to make a transaction, putting away the risk of being hacked. Example of a Cold storage wallet would be Hardware wallet that is accessed via USB drive and can be put on offline mode easily. Crypto Margin Traders could use this Cold storage when making a margin trade. It not only helps the funder/lender but even the trader to put his collateral in a secure way.

Hot Wallets, on the other hand, refer to “liquidity in hand” by exchanges in case there is a sudden request of withdrawals. Just imagine a bank in your neighborhood keeping “cash handy” for withdrawals. Example of hot wallets would be an online wallet or desktop wallet. So for Margin trading in case, a margin call is made, and the borrower is not able to fulfil or top-up his wallet, the exchange would release the collateral from the hot wallet to the lender.

While the experts recommend usage of Cold Storage, hot wallets are still to be used whenever the need arises. Would you like to share your crypto wallet story with us? Please post on to our twitter account

References

Dummies, blockgeeks.

October 25, 2018