What is Margin Trading? Everything You Need to Know

Margin trading is present not only in cryptocurrency, but in the traditional market as well. In a nutshell, this type of trading allows you to trade with assets provided by a third party.

That means you can leverage your current funds by borrowing funds and increase your buying and trading power.

But who exactly are these third parties providing additional funds?

In traditional markets, it’s usually an investment broker. On the other side, in the cryptocurrency market, other traders and the cryptocurrency exchanges act as a third party.

margin trading chart

So, how does margin trading works? Here is an example.

Let’s say you have $20, but you want to buy $100 worth of Ethereum. To do this, you can use margin trading and leverage 4:1. This way you can borrow an additional $80. The thing is, however, that no matter if you make a profit or not, you’ll have to pay back the $80, plus fees.

Crypto exchanges usually have a range of leveraging options. For example, it can be something like 2:1, 4:1, 100:1, etc. You get the idea.

You can do margin trading in two ways:

  • Short, in which case, you bet that the price will go down, and
  • Long, where you bet that the price will go up

Margin trading has its advantages and disadvantages. On the bright side, it can result in huge profits and allow traders to open their position quicker.

Still, this type of trading is risky and speculative, which makes it suitable only for high-skilled traders.If you decide to try out margin trading, here are some of the crypto exchanges where you can do it.

Where to margin trade?

Bitfinex – trade with up to 3.3x leverage

margin trading Bitfinex exchange

Bitfinex is a popular crypto exchange headquartered in Hong Kong. The exchange allows its users to trade with up to 3.3x leverage. Users have two options:

  • To enter an order and borrow the amount they want, or
  • To open a position and take out funding at the best available rate

BitMEX – leverage up to 100x

margin trading bitmex

BitMEX is a P2P crypto trading platform based in Seychelles. The platform offers margin trading with up 100x leverage on some of its products. For example, you can buy 100 bitcoin of contracts with only one bitcoin to back it.

Kraken – margin trading with up to 5x leverage

margin trading kraken

Kraken is a US-based exchange, allowing its users to leverage their funds up to 5x. The exchange also offers low rollover fees (never more than 0.02% per 4 hours). Moreover, Kraken has an intuitive trading platform and allows users to borrow up to $500,000.

Wrap-up

Now that you know what the margin trading is, remember the most important thing about it: it’s highly risky and speculative trading not suitable for beginner traders.

Before getting involved with it, make sure that you have at least a couple of months of trading experience, and always trade only with the amounts you can afford to lose.

There are many beginner-friendly ways to earn cryptocurrency, so consider exploring them if you’re new to the crypto industry.

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