With the strengthening of the cryptocurrency market, new concepts and solutions come from the world of traditional finance to the developing space. One of these is margin trading, which allows crypto traders to trade more successfully. More and more exchanges are adding a new option and more and more players are interested in it. So what is margin trading and what strategy to choose for it? The use of the Onion bitcoin mixer is essential.
What is leverage trading?
Margin trading, or leveraged trading, is a type of trading in which a trader can borrow funds from the exchange and use them in trading operations.
Why is margin trading also called leverage trading?
Leverage, or leverage, is the key concept of a “margin”. For example, leverage x5 means that a client with $ 1,000 in the account can trade for an amount 5 times larger ($ 5,000) by borrowing the missing funds from the exchange.
Margin trading chart
Of course, the borrowed funds will need to be returned to the exchange in the future.Leveraged trading is recommended for experienced players who know which direction the price of an asset will move and when to buy or sell it. The concepts of long and short are directly related to this.
Long, he is also a “promotion game” and “long positions”:
- You take a loan from the exchange and buy an asset (for example, bitcoin).
- Wait until its price rises, and then sell it.
- You return the borrowed funds to the exchange, you keep the profit for yourself.
Short, aka “short game” and “short positions”:
You sell your bitcoins and those that you took from the exchange. You wait until the cryptocurrency becomes cheaper, you sell and for the proceeds, you buy even more bitcoins. Now you can return its bitcoins to the exchange and cover your costs with a margin.
Margin Trading Classification
In addition to buying bitcoins or other cryptocurrencies directly, you can also purchase futures in the same way. Futures are contracts for the purchase/sale of assets at a certain price in the future.
Margin trading on exchanges begins with the creation of a separate margin account and its replenishment. Suppose you put $ 1,000 in your account. Different exchanges offer different conditions. Usually, there are several options for margin trading, for example, x3 and x5. If you choose x5, it means that you have access to trade for an amount 5 times larger in our example it will be $ 5,000.If you decide to play along, then the next step will be to buy cryptocurrency (the way it will be BTC). Wait until prices rise, you sell your bitcoins.
How much will you keep if bitcoin doubles and you have $ 10,000 instead of $ 5,000 in your account?
Initially, you had $ 1,000 and the ability to trade for $ 5,000. That is, you got $ 4,000 from the exchange. So, you will need to pay back these $ 4,000 plus the small interest that the exchange charges for using its funds. Total: you have $ 6,000 left in your hands.