Cryptocurrency is becoming a popular form of trade nowadays. However, if you are new to this digital exchange, you might stumble upon various alienating terms. One of which is margin trading. You might be asking, what is margin trading cryptocurrency?
In simple terms, margin trading in cryptocurrency is like your regular loans; you borrow money and pay additional interest. This system allows you to borrow money to add to your current fund to purchase a good or service. That means you can leverage your current cryptocurrency to increase your funds. If you need to purchase something important but do not have the buying power, you can opt to take advantage of margin trading.
Pros And Cons Of Margin Trading
You can take advantage of margin trading in two ways: long and short positions. A long position means to are betting that the price of your asset will go up, while a short position means it will go down. As the values change, you can use your current value as collateral to increase your funds. However, you must understand the risk that comes with this system. Margin trading gives the brokerage the right to force sell your assets once they drastically move against your position.
Now, let’s answer the question, “What is margin trading cryptocurrency?” To understand fully, let’s talk about its advantages and disadvantages. For one, margin trading allows you greater profits since you can increase your buying power, increasing your trade value. Also, since you have a bigger fund, you can diversify them and open various positions to minimize losses. Lastly, you can easily open positions when the market value increases, without the need to add a considerable amount of money into your account.
However, learning what margin trading cryptocurrency also comes with some cons. You need to be mindful since margin trading is generally a high-risk system. It is because the possible losses can exceed your initial investment. Depending on how much funds you have, a slight decrease in the market price can significantly affect the value, resulting in substantial losses. Thus, if you want to take advantage of this method, you have to assess all risk-factors and employ mitigating tools like stop-limit orders.
The Basics of Margin Trading Cryptocurrency
After understanding what margin trading cryptocurrency is, what comes next is learning the basics. Margin trading can be overwhelming, especially for newbies. However, with proper analysis and understanding, the process becomes more manageable. Taking into example the Bitcoin position, here are some simple ways on how to do margin trading:
Let’s say you’ll want to increase your Bitcoin leverage through PrimeXBT. Here’s what you need to do:
- The first step in margin trading cryptocurrency is to create an account with any brokerage sites like PrimeXBT. Complete the sign-up process by navigating the site’s interface. You’ll need to input and confirm your email address and country of residence to complete this step.
- The next step is to fund your account to start trading. PrimeXBT will require your capital for the trade, which you need to deposit through your Bitcoin or credit card. Using your credit card allows a real-time process, but it does come with a higher fee. On the other hand, using bitcoin is a cheaper way to enter this platform.
- Once the account is already funded, you need to go to the Account Summary tab located on the sidebar. It transfers funds from your Bitcoin wallet to your trading PrimeXBT account.
- You’ll need to navigate further on the site and find the Trade window, situated on the top part of the navigation bar. After clicking, you will see a trade window. Click on the BTC/USD option and choose a trade. And order window where you can input your position will prompt afterward.
- The last step is to input your order and set your parameters. These include your market, limit, stop-order, and OCO. Enter your desired position to trade. Usually, PrimeXBT uses 100x leverage, so take notes when undergoing the process.
- Choose the option Send Order when you’ve completed all the steps above. PrimeXBT will show you a summary of your order for your reference, usually at the bottom part of the window. If you want to check your current balance, equity, used margin, unrealized PL, and available margin, you can hover and click the account overview for a comprehensive outline.
Although margin trading presents various advantages, it might not be ideal, especially for those who are new to the world of cryptocurrency. Margin trading requires extensive research and experience for it to work to your advantage. You can also utilize it with more specific processes such as hedging. Losing money in the trade with additional interest funds to need to pay might be too much. Only use the funds you have, and as you get more experienced, you can gradually increase.
However, if you think margin trading can improve your cryptocurrency value, you can try it. Just make sure to equip yourself with all the knowledge and risks involved in this trade form. Understanding how it works can help you strategize on using it effectively. Go through terms like margin ratios and calls and other technical indicators involved in margin trading. Want more awesome trade secrets in cryptocurrency? Go here!
Understanding what margin trading cryptocurrency is broadening your cryptocurrency purchasing options. With limited funds, you can use this feature to increase your buying power and position order. If used correctly, you can maximize margin trading to increase your gains and diversify your positions.
However, margin trading can also pose various risks. It can also increase your losses even with just a slight drop in the market value. Thus, before venturing into margin trading, equip yourself with the knowledge and skills to use them to your advantage. Due to the volatile nature of cryptocurrency, you have to strategize well to come up with the best possible trading option.