Bitcoin margin trading boosts your crypto profits by allowing you to borrow money to trade with. This gives you leverage, meaning you can open bigger positions than your account balance would otherwise allow. It also amplifies your potential losses, so margin trading is only for experienced traders who know how to manage risk.
Let’s dive into everything you need to know about Bitcoin margin trading, including the risks and rewards, how to get started, and where to find the best margin trading exchanges.
What Is Margin In Crypto Trading?
Simply put, margin is a borrowed percentage of the funds needed to make a trade. In traditional trading this is set at a maximum of 50% – but in crypto trading, the amount is set by the individual exchanges and based on the specific cryptocurrency being traded. This borrowed money can also be referred to as leverage. For this reason, margin trading in cryptocurrency is sometimes referred to as leveraged trading. The leverage is the amount by which the trader is able to multiply their own balance. For example, if you have $10 to trade with and use margin with leverage of 5x, you’d be able to trade with $50 (10 x 5).
Do You Need A Margin Account When Trading Crypto On Margin?
With regular trading, you need to have a specific margin account dedicated to trades made on margin. When trading crypto on margin though, you do not. The initial margin, maintenance margin, and margin call will be based on your exchange wallet balance. The funds needed for the trade will be held as collateral by the exchange and will not be shown as available in your balance.
How Bitcoin Margin Trading Works?
When you use leverage to open a position on Phemex, you’re using margin. Different exchanges offer various amounts of leverage. Leverage can only be used for contract trading and not for spot trading. Each trading pair has its own associated available margin/leverage, initial margin rate, and maintenance rate. On the Phemex spot market, you can margin trade for up to 5x leverage.
If the value of the coin goes up, so will the balance in your account. If the value of the coin goes down, so will your balance. When margin trading on Phemex, your position will have a margin level that incorporates the account balance, liabilities, and total interest. When your margin level falls to 1.1, the liquidation process starts until the margin level recovers to a healthier amount.
Example Of Margin Trading Cryptocurrency
If you want to buy BTC and have $100 – with 5x leverage you would be able to buy $500 of BTC. Now imagine $500 bought you 1 BTC. If the price of BTC went up so 1 BTC was now worth $750 – your profit is $250. If you close this position now, you will get $250 + your initial $100 back into your account. Of course, trading fees and interest rate payments would need to be subtracted. But nevertheless, by taking on leverage, you were able to achieve roughly a 250% return even though BTC only rose by 50%.
How To Margin Trade Crypto?
To start with Bitcoin margin trading, you will need to open an account with a margin trading platform like Phemex which lets you margin trade on the spot market with up to 5x leverage. On Phemex, you first need to enable margin trading then transfer funds to your Margin Trading account. These funds can then be used as collateral to borrow additional assets. Traders can choose to manually borrow or use the Auto Borrow feature to open a leveraged position. Note that on Phemex, margin trading is cross-margin.
Cross margin is where your entire account balance is automatically used to prevent liquidations. The funds are distributed across all your open positions and used as margin. This means that when liquidation occurs, all assets in the Margin Trading account may be liquidated. However, Phemex margin trading allows for partial liquidation so only part of the position might be liquidated if the margin risk level aptly recovers.
For a more detailed tutorial, check out How Do I Margin Trade on Phemex. If you’re new to margin trading and worried about losing all your capital, the Phemex Crypto Simulation Trading feature is perfect for you. You can use this to test your trading strategies with real-time data to get used to the risks involved before margin trading with real capital.
Analyzing The Trends & Opportunities To Margin Trade Bitcoin
Bitcoin margin trading and leverage trading can be beneficial due to the increased profits that can be made. However, it’s important to note that it is a risky endeavor as the losses can also be amplified.
When selecting a Bitcoin margin trading platform, it’s important to consider the fees, interest rates, insurance, liquidity, and security of the platform. Setting up small amounts of leverage and practicing with a simulation feature is a good way to get started. Phemex helps you margin trade with ease and has a wide variety of features to offer traders.