If you are a trader with limited crypto resources like bitcoin, there’s an available option for you to increase leverage for your investment. This will help you increase your portfolio without actually holding the assets. However, it’s important to understand that this option may not be recommended for all traders. There are risks involved for some.
So, what is it?
Cryptocurrency Margin Trading Explained
Margin trading is the process of trading using borrowed funds, rather than the trader’s. Placing a margin order would mean using borrowed money offered by another user or peer to peer loan. And it’s important to take note that the money in a margin account is only used as collateral for the loan or in settling debt with the lender.
Beginners to margin trading in cryptocurrency need to familiarize themselves with the terms and conditions before trading their funds. For instance, you need to understand how your account works and how to navigate it. When adding margin trading in your account, there should be 3 separate accounts where your deposited money is stored.
These accounts are: Exchange, Lending, and Margin.
Essentials in a Cryptocurrency Margin Trading Account
- Total Margin Value – this is the overall BTC value you have in your account including all the currencies. The total margin value is determined using the BTC amount added to the lesser amount in the balances you have in your account.
- Unrealized P/L – this is the approximate overall loss or profit that you may incur with closed open positions.
- Unrealized Lending Fee – this is the estimated overall value of your current interest from your active loan.
- Net value – this is the sum of unrealized lending fee, unrealized P/L, and total margin value. It corresponds to your collateral’s current total worth.
- Total Borrowed Value – this is your open loans’ overall BTC value. It’s determined by your current BTC amount borrowed added to the BTC amount you still need to purchase from the existing order books.
- Initial Margin – this is the net value’s percentage which you can lend. For instance, if you’re planning to lend 3 BTC with 40% Initial Margin, you are required to at least have 1.2 BTC.
- Maintenance Margin – this is your total borrowed value’s percentage which your net value should have to avoid forced liquidation.
- Current Margin – this is your total borrowed value’s percentage which your current net value has. It’s a critical amount due to the risk of having forced liquidation once it goes lower than your maintenance margin.
Tips in Cryptocurrency Margin Trading for Newbies
After transferring money to your margin account, you need to place “buy and sell” orders to start margin trading. The borrowing process is automatically handled so you have nothing to worry about it. However, there are some important reminders when placing orders on your account:
- On the Exchange section, Loan Rate and Tradable Balance fields are the 2 things that make this section different from the Buy Box. The tradable balance shows the value of your money that is currently available for trading.
- The Loan Rate will allow you to specify the maximum interest rate you’re ready to pay if you open a new loan. The loans you can get are offered with the best rate, so there’s no risk if you decide to set an amount that is higher than the offered lowest rate.
Cryptocurrency margin trading will also allow you to open positions with leverage. For instance, when you open a margin position with times two leverage, your base assets will increase by 10%. In addition, your position will yield 20% due to the times two leverage. You can also do standard trading using the leverage of 1:1.
Why Margin Trading Is Possible
Margin trading with cryptocurrency is possible because of the existing lending market. Lenders are providing loans to margin traders so they could invest in bigger amounts of bitcoins. In exchange, lenders earn extra revenue from the loan interests. Just be aware of the risks that may come with the borrowed funds to avoid incurring bigger debts. Now you know the basics of margin trading.
So, are you ready to trade with your bitcoins and other cryptocurrency resources today?
Find out exactly how to margin trade by following the tutorials offered by iCoinPRO – you can become a member HERE.
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