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 also 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 50x, you’d be able to trade with $500 (10 x 50).
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. At Phemex, we offer up to 100x leverage for your trades. 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.
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 your total account balance goes below the margin maintenance rate, you will receive a margin call to top up the funds in your account to reach the minimum margin, or the exchange will liquidate your position.
Example Of Margin Trading Cryptocurrency
If you want to buy BTC and have $10 – with 10x leverage you would be able to buy $100 of BTC. Now imagine $100 bought you 1 BTC. If the price of BTC went up so 1 BTC was now worth $150 – your profit is $50. If you close this position now, you will get $50 + your initial $10 back into your account.
Conversely, take your same $10 with 10x leverage and buy that 1 BTC. If the price of BTC then goes down, this is where the maintenance margin rate will come into play.
The maintenance margin rate (MMR) of BTC/USD at Phemex is 0.5%, this means that the maintenance margin is 100 x 0.005 + 90 = $90.50. This means that if at any point the value of your 1 BTC goes below $90.50, you will be on margin call and asked to either deposit more currency to bring the balance up to $90.50 or liquidate the position. The entire margin of $90 that was lent to you will get returned and you will get back $0.50.
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 trade Perpetual Contracts with up to 100x leverage. You can allocate your funds to open a position. It’s important to note that Phemex offers two types of margin options – isolated margin and cross margin which can be selected from the Leverage Module tab.
Isolated margin is where you can trade with a selected amount of capital, and your position will not be liquidated even if the price falls below the maintenance margin. This is useful for managing risk as you can limit your losses to the amount of capital you have allocated.
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. Phemex’s intelligent systems automatically manage your margin and position sizes to ensure you have enough funds to avoid liquidation.
Once you have selected the amount of leverage and margin, the liquidation price is automatically calculated based on your leverage. You can then open a long or short position.
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, 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.