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

Cobinhood, New Tokens Added with Margin Trading and Funding

Cobinhood exchange – that charges no fees for trading have planned to add new tokens XRP and NEM to expand the reach of their services. The exchange has also added a benefit of margin trading and funding with Ethereum (ETH), Cobinhood Coin (COB), and Bitcoin (BTC). The announcement was made on Twitter.

The new cryptocurrency trading features would be launched on the platform on October 19th, allowing users to maximize their crypto assets.

Cobinhood recently made cryptocurrency headlines for receiving the Red Dot Award: Communication Design in 2018. They are the first crypto-related business to win this accolade, establishing a historical difference in the industry.

Pros and Cons of Crypto Margin Trading

What are Crypto Wallets and How Crypto Wallets Work?

In our last post, we narrated about What is Crypto Margin Trading and Costing of Margin Trade with examples. If you missed our previous post, please check here. In today’s post, we would discuss about Pros and Cons of Crypto Margin Trading.

Cryptocurrency Margin Trading is like availing Home Loan. Just as you can buy a Home worth 50,00,00 with 20% down payment[i.e., 10,00,00] and rest 80% as a loan, similarly in margin trading of cryptos, you can own Bitcoin or Altcoin worth $5000 with just $1000 capital with 5x leverage. The mechanism of holding high worth seems lucrative but has associated risks with it. Let’s take a closer look at the advantages and disadvantages of Crypto Margin Trading.

Pros of Crypto Margin Trading

Margin Trading concept was born in the US and is now accepted widely across the globe. Let’s look at the advantages of cryptocurrency Margin Trading –

Access to High Worth at less Price

One of the most straightforward advantages of margin trade is owning a high worth asset at a lesser price. With Margin Trading a trader could own a digital asset worth of $10,000 by paying $2000 [excludes fees] with 5x leverage.

Larger Gains

If the trader has studied the market proactively and made the right decision to invest in Margin trade, with an upward market trend he can attain profit. Just for example if you have a margin call trade for a digital asset worth $10,000 by paying $5000, if using the leverage of 2:1, you can double your gains.

Cons of Crypto Margin Trading

Every coin has a flip side, so if you thought Cryptocurrency margin trading would only lead to profit and gains, hold on. Margin trading comes with its own set of risk, let’s evaluate –

Borrowing Money To Margin Trade Comes at a price

As a trader, there is no harm in dreaming of owning $1000, $10,000 or even $50,000 worth of bitcoins. With Margin trade it is possible as well, but the initial capital [assuming leverage of 2x] you need to borrow from lenders, you would need to pay interest on that amount. Now, this interest varies from exchange to exchange. Hence when you are calculating your gains, make sure to put in the interest amount you need to pay from your pocket.

Losses Could Be Amplified

Just as we saw gains are multiplied, and a trader could double his profit. Similarly, if the investor has not evaluated all the factors of market risks and cryptocurrency risks, the losses could be augmented.

Risk of Margin Call

Each exchange makes it a mandate for traders to maintain a minimum account balance say for example 25% of the open position. So in cases where the market is sailing in the opposite direction against your predictions, even your balance would fall below the set margin requirement, either you need to add more funds to your account balance to avoid a margin call or else the account would be closed automatically.

To excel in the art of Margin Trading all you need is an in-depth knowledge of cryptocurrency markets and risk management. Margin Trading is a useful investment strategy if applied intelligently could lead to a bigger account balance.

Our next post would talk about different exchanges that allow Crypto Margin Trading. Stay Tuned.

If you liked our post, please follow us on twitter [@getnuo] to get latest updates and insights.

October 4, 2018

Crypto Margin Trading – Everything you need to know

How could a crypto investor who has a limited amount of cryptocurrency add leverage to his investment portfolio? One of the options that could pay off but is a risky investment is Margin Trading. Margin Trading allows investors to upsurge the amount to be invested without holding the assets. Though it sounds simpler is considered to be a risky strategy and not recommended for everyone.

What is Crypto Margin Trading?

Margin Trading is a concept where the traders are allowed to open a position with leverage. Picking an example would be beneficial here –

Assume you are keen to purchase 1000 shares of XYZ, which are currently trading at $5, so the amount of capital you need is $5000[1000*5]. Now with Margin trading, you can buy a future contract of XYZ by paying 20% margin, that means by investing $1000 you can get exposure to the stock of value $5000.

Leveraging has helped an investor to manage a portfolio worth $5000 with just $1000. Leveraging would also help in making profits if the prices of the stock shoot up.

In crypto world, the concept is similar where Margin Trading is conceivable due to growing interest of cryptocurrency users in the lending market. Funders offer loan to investors, while lenders earn interest on the loan released, the investor uses this money [ in crypto, bond or fiat form] to invest in more significant amounts of coins.

Lets again pick an example –

So 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.

Globally, we have two types crypto exchanges model, one where customer themselves offer the loan for the margin market and second where exchange itself provides them.

Costing of Crypto Margin Trading

Margin Trading is considered to be a risky investment and hence also serves as a high return strategy. So while leveraging is the best reward earned, it could also turn into bankruptcy risk when there is a steep fall. So as the investor’s chance of gaining more increases at the same rate there is an increase in the risk to lose more. Hence exchange fixes a value called as liquidation value. It is the value where any exchange would automatically close your position so that you do not lose any of the loaned money, and only lose your own money.

Cost of Crypto Margin Trading

The cost of a margin position would include

The interest for the borrowed coins
Fees for opening a position with the exchange

Continuing the same example of borrowing $10,000 worth of bitcoin with 2X leverage you would need $5000, so either you can borrow this money from exchange/lenders that would mean to pay interest and also a fee for opening a position with the exchange.

So total cost of buying a theoretical $10000 worth of bitcoin would be –

= $5000 + interest [ varies from 5% to 50%] + fees

Our next post would talk about the pros and cons of Crypto Margin Trading. Stay tuned.

If you liked our post, please follow us on twitter [@getnuo] to get latest updates and insights.

October 3, 2018

Cryptocurrency certification program launched for crypto traders

The Russian Association of Cryptoindustry and Blockchain (Racib) launches a certification program for professional crypto traders in the country. The course is designed to assess the competency level of applicants. Following the evaluation, each participant will receive a certificate that shows their competence in cryptocurrency, which can be checked on the association website. The program will assess several criteria, such as

Knowledge of technical analysis,

Knowledge of fundamental analysis,

Knowledge of semantic analysis,

Knowledge of management risk,

Knowledge of Money Management,

Skills of drawing up of trading strategy,

Trading Planning Skills,

Margin Trading Skills, and

Self-control skills.