Crypto Margin trading is rewarding as well as risky, while the investor needs to be smart and familiar with the basics he also needs to be aware of basic facts about crypto margin trading. Sample this –

You are an investor putting money worth $10,000 in cryptos and couple of days later the same $10,000 is valued at $20,000, and a few days later the investment is just $200. It’s insane! Isn’t?

Hence, it gets crucial for investors to know the basic facts of crypto margin trading. Let’s get started –

Facts of Crypto Margin Trading

Experience Pays

You could be next Vitalik Buterin, but margin trading needs only veterans. The investor should know the rules of the game. The world of cryptocurrency and on top of it applying margin trading strategy is a risky approach, and hence best suited for experts. Reading a book or a Reddit comment that says how I made $10,000 via crypto margin trading could be fabricated stories with no supported base. Hence before making any investments gain experience, get trained, acquire skills and then jump onto the arena.

Start Slow

Being a pro does not entitle you to opt for higher levels of leverage. With crypto margin trading, the mantra is – BE A TURTLE. Effective risk strategy is essential but starting slow is also much more crucial. Start by using a lower level of leverage and do not put a massive investment from day one, estimate your loss in case the market isn’t expected as you speculated.

IF you are trading too much in the crypto world that is a highly volatile market, it can even lead investors losing 200-300 BTC in a few days.

Risk Management is critical

Starting slow is one of the active risk management strategies and so is the option of using a stop loss. It boils down to “How much you can lose”? So if you bought bitcoin at $10,000, you could set a stop loss order at $8,500. It would help in limiting your loss to $2,500.Be very cautious while using stop-loss as a risk management tool, because if you set a price too close to buying price, you may lose and put a stop occur before any profit is seen. Or if you select a broader range that could also result in substantial losses. Read more here at Five Crypto Margin Trading Tips Investor Should Know

Cushioning is prime

Last but not the least is never ever put all your money on a single trade, even though you are 200%sure of returns. Make sure to keep some spare cash for unforeseen circumstances and when the market is not on your side.

Do you have any fact to share about Crypto Marin Trading? Feel free to post on our twitter page here.

References

Finder, Coinsutra, cryptopotato

We spoke a lot about Crypto Margin Trading, How it works, pros and cons, Ethereum Margin trade, bitcoin margin trade, and even margin trading tips but there are some of the terms which are yet to be explored. Our post of today would narrate some of the terms like – Margin Trading, Margin Funding and What it means to have a long position and short position in a Margin trade.

Let’s get started –

Margin Funding and Margin Trading – What’s the difference?

What is Margin Trading?

Margin Trade or Margin Trading is a process of borrowing funds from brokers/exchanges that could be used to buy cryptos of a large amount. So for example –

If you are planning to buy $10,000 worth of Bitcoin

With borrowing 50% Or leveraging 2:1 or 2x

Then you would only need $5000 to purchase a bitcoin worth $10,000.

With the leverage, an investor is allowed to own a capital worth more of its buying capacity. There are many platforms that offer a leverage up to 100x, but please be cautious before investing as it’s a risky venture.

What is Margin Funding?

Margin Funding is precisely opposite of the margin trade, where the lender offers amount to a trader to fund an investment.

So continuing the same example –

If a trader is planning to buy $10,000 worth of Bitcoin. 2:1 or 2x leverage, the lender or funder could offer a loan of $5000 to the trader.

The trader would need to pay a margin funding interest fixed by the borrower/platform. Here the terms, i.e. return rate, duration, and the amount could be chosen by the lender or fixed by the exchange.

Margin Funding is considered to be a safe option for many investors, as the borrower pays for your losses.

Long Position and Short Position in Crypto Margin Trading?

In Margin Trading, investors need to apply their intelligence and analysis to predict strongly if the crypto price would move up or down.

So, if you are planning to make a profit with Bitcoin price moving up, you might need to consider opening a long position. Here is an example that demonstrates how a long position in crypto margin trading works –

How Long position in crypto margin trading works?

Say, as a trader you wish to procure Bitcoin worth of $600 and based on your prediction you have come to conclusion that Bitcoin price would move upwards.

So, with 1:2 leverage you borrow $300 and buy Bitcoin worth of $600 when price moves up say $900 the profit you earned would be $300 [ 900-300[account balance]-300[borrowed money]], i.e. excluding fees/interest.

This is known as a Long position in crypto margin trading.

Now, if you are planning to make a profit with Bitcoin price moving down, you might need to consider opening a short position. Here is an example that demonstrates how a short position in crypto margin trading works –

How Short position in crypto margin trading works?

The current price of Bitcoin is $400 and again as per your smart analysis you come to a conclusion that prices would be dipped further, then you can earn a profit by selling the borrowed cryptos and repurchasing them later at a lower price.

The exact opposite of a buy position and even the profit/loss is reversed.

So if you opened a 2x short position with $100, if it went down 50% you’d earn $100; if it went up 50%, you’d have lost $100, and the exchange would close your position.

Hope this narration helps you in understanding Margin Trading better. Happy Trading.