Margin crypto trading is a popular term new traders are likely to come across when they step into the crypto space. Even though it is an interesting and exciting concept, it is also a highly risky venture and requires traders to know about several aspects before they opt for it.
Stepping into crypto trading without having proper information is not the best practice as there are numerous aspects to be mindful of first. If you have proper information about what trading is, the risks it poses, risk management tips you can use, and where or what to trade then you can advance to more complex things such as margin trading.
Here is a guide to simplify margin crypto trading for beginners by giving them all the necessary information that can help them make an informed decision.
What is Margin Crypto Trading?
Margin trading is an advanced and popular trading strategy that allows traders to trade with more than what they originally own. In other words, the traders can borrow funds from the brokers and open bigger trading positions as compared to the ones they could if they only used their funds.
The borrowed amount is called leverage and it varies from one exchange to another. The leverage you can get in the industry can be as low as 2x or as high as 125x. As a new margin trader, you should also know that the higher the leverage, the higher the risk you may face.
This is because if you open a bigger trading position then the profits (if any) or losses will also be high, depending on how the trade goes. If you are not careful with the leverage or margin you choose then you can lose more than you can afford.
To trade with leverage, your margin account first needs to have some funds. Based on that you will be able to borrow the leverage. The amount you borrow is also used as collateral and if the price of your asset drops below a certain point, you can lose your entire investment.
How Leverage Works?
Here is an exchange of margin crypto trading for beginners, that can help them understand the concept clearly.
As a leveraged trader, if you borrow 10x leverage for BTC and the price of the crypto king goes up 5%, you are likely to get a profit of 50%. According to this calculation, you are likely to get double what you initially invested if the price of BTC increases by 10%.
On the other hand, the same numbers can be reversed if the price of the flagship crypto asset drops. If it decreases by 5%, you will lose 50% of your investment and 100% of your investment if the price drops by 10%.
Therefore, you need to be careful while margin crypto trading and opt for a suitable crypto asset as well as a leverage ratio.
How to Choose a Digital Currency for Margin Trading?
Choosing a suitable crypto asset is one of the topmost aspects you need to consider before you begin because this could be quite difficult and complex. There is no shortage of cryptocurrencies in the market. However, opt for a digital asset that is suitable for margin trading because the crypto space is associated with a lot of volatility and unpredictability.
Therefore, margin crypto trading for beginners requires them to know that the best digital assets to trade with leverage are the ones that have a high market cap and are more stable than others.
Popular Crypto Exchanges for Margin Trading
Apart from choosing a crypto asset to trade with leverage, interested parties should also know about the top platforms that support margin crypto trading.
A number of platforms support this type of trading but not all of them are suitable to be use. As mentioned above, the amount of leverage offered to the traders varies from one trading platform to another. Therefore, before you opt for an exchange you should take a look at the leverage ratio it offers to the users.
Apart from these aspects, you should look for platforms that are well-reputed and have high reviews and ratings from other margin traders.
Some of the popular options for margin crypto trading for beginners include the following:
- Bybit
- Binance
- Phemex
- PrimeXBT
Final Takeaways!
Any crypto trader interested in margin crypto trading needs to have the information mentioned above in detail. Knowing this information can help prepare for trading with leverage after understanding the concept.