Bitcoin Margin Trading Guide & Best Exchanges -2023 Updated

Bitcoin Margin Trading Guide

What if you had the ability to initiate trades with more money than you actually have available in your account? Imagine being able to trade effectively with $1,000 deposited but having access to $2,000, $3,000, or even $10,000.

On many cryptocurrency exchanges, that is absolutely possible and is referred to as margin or leveraged trading.

Welcome to our instruction manual. What margin trading in Bitcoin and cryptocurrencies is, how it operates, top exchanges that support margin trading, and most crucially, some must-read advice before putting even the smallest leverage position, are all covered in the paragraphs that follow.

 

Quick Navigation:

• Bitcoin Margin Exchanges
• How to Short Bitcoin?
• Bitcoin Margin Trading Vs. Futures Trading
• Margin Trading Tips: Read Before Placing Orders
• Costs and Risks of Crypto Margin Trading

What is Bitcoin Margin Trading?

Because Bitcoin has the largest market size and the highest trading volume across all exchanges, we will primarily concentrate on Bitcoin margin trading in this article.

The guidelines and advice provided here, however, apply to all supported cryptocurrencies for margin trading, including Ethereum (ETH), Ripple (XRP), Solana (SOL), and others.

In essence, using cash provided by a third party—typically the exchange you’re using—is how cryptocurrency margin trading works.

Margin trading amplifies your trading’s outcomes in both positive and negative ways; it can increase your profits while also potentially escalating your losses.

It is highly common in low-volatility markets because of its capacity to multiply trading results.

However, cryptocurrency margin trading is also very well-liked and has shown a consistent rise in volume over time.

For instance, if we created a margin position for Bitcoin with a 2X leverage and Bitcoin increased by 10%, the 2X leverage would have caused our position to yield 20%. Without leverage, the ROI would have only been 10%.

Despite the danger, using 25X or higher margin leverage would have resulted in a 250% return on the same position as mentioned above, as opposed to 10% with no leverage.

Best Bitcoin & Crypto Margin Trading Exchanges

How Does Margin Trading for Bitcoin Operate?

Most of the time, the user can borrow money from the exchange, and this money is either provided by the exchange itself or by other users who receive interest.

Trading capital can be increased in this manner, allowing traders to open larger positions. Since each position has a liquidation price based on the amount of borrowed margin, the exchange doesn’t carry many risks.

How Can You Short Bitcoin and Other Cryptocurrencies?

Do you want the opportunity to profit when the price of bitcoin drops? Margin trading makes it possible.

In essence, a short position on Bitcoin is a wager that the price of BTC will fall.

Its operation is fairly straightforward. In essence, you buy Bitcoin now, sell it, and then buy it again when the price falls.

Let’s give an example since it can be a little unclear.

Let’s say you have $10,000 in your Binance margin account and Bitcoin is presently trading at $10,000. You can borrow 2 BTC (for instance) and use this as collateral, then sell it for $20,000 at the going rate.

Now that you have $10,000 in your own cash and $20,000 in borrowed funds, the exchange must receive 2 BTC in repayment.

If all goes according to plan, the price of BTC will fall to $8,000. The time has come for you to turn a profit.

You spend $16,000 to purchase 2 BTC (because that’s how much you have to buy back). Keep in mind that you received $20,000 for them.

This indicates that if you pay back your loan (of 2 BTC), you will have $4,000 more in your account. Welcome, those are the terms.

Read also – What will happen if robinhood delist ADA , SOL, Matic ?

Isolated vs. Cross Margin

Users can employ cross-margin and isolated margin modes on numerous exchanges, including Binance Futures.

The margin balance applied to prevent liquidation distinguishes the two contracts.

To avoid liquidations, the entire margin balance is distributed among open positions if cross-margin is permitted.

This means that, in the event of a liquidation, the trader runs the risk of losing the whole balance of their margin account in addition to any open positions.

The sum that is devoted to a single position is referred to as isolated margin.

This indicates that the trader can control the risk associated with each of their particular bets by limiting the precise margin that is allotted to them.

Liquidation of a position has no impact on the trader’s overall balance or other open positions. It can also be altered on a per-person basis.

Futures Trading vs. Bitcoin Margin Trading

Many individuals frequently conflate margin trading in Bitcoin with futures trading, but there are important distinctions to remember.

To more clearly distinguish between the two sorts of Bitcoin trading, we shall segment it.

Markets

Users can make orders to purchase or sell Bitcoin on margin on the spot market. In essence, this means that every order is matched with a spot market order.

Trading orders for Bitcoin futures are placed in the derivatives market to purchase or sell contracts; since they do not use the same orderbook, they have distinct levels of liquidity.

Leverage

Users can benefit from very high leverage when trading Bitcoin futures, which can range from up to (or even higher than) 100x depending on the exchange.

Users have access to an average between 3x and 10x using Bitcoin margin trading, depending on the platform.

Trading Charges

The fees for margin trading in bitcoin and futures are often dissimilar because they are conducted on totally distinct markets.

While futures trading fees are dependent on the derivatives market, margin trading often adheres to spot market expenses.

Read Before Placing Orders for Margin Trading

Margin trading is dangerous, thus beginners should avoid it.

As a result, if you’re new to this form of trading, we’ve put up a few essential guidelines to guide you.

Remember that trading in this way includes a higher risk of losing money, therefore you should never trade with money you can’t afford to lose.

Always begin trading with modest sums.

Is today your first day of trading on margin? Even if it’s not, you ought to think about beginning small.

Before diving into the turbulent, deep waters of margin trading, have the essential confidence and experience.

Avoid making a complete commitment at once.

Even if you have complete faith in your ability to trade, it is still preferable to break your positions into segments and build a ladder of prices.

By averaging down your entry price, you can lower the risk. The same is true for profit-taking; you can build up a ladder to do so as you climb.

Knowing the costs and liquidations

You must always be aware of the cost and nature of the fees you pay.

Make sure that the continuous expenses associated with margin trading don’t consume your entire profit or, worse yet, your balance.

The same is true for monitoring your liquidation price; you need to be aware of that figure in case the position starts to approach more quickly than you had anticipated. This leads us to our next point.

Control of risk

Establish precise risk management guidelines and make sure you abide by them when trading on margin.

Stay away from greed. Consider how much you are willing to risk, and remember that it’s always possible to lose it all.

Use stop loss levels at all times. This will stop the liquidation of your entire stack.

Short/long squeeze is a type of price manipulation.

The cryptocurrency markets are still largely uncontrolled.

The occasional short and long squeeze occurrences are possible, which is also related to the market’s size at the moment.

When there are several short or long positions, a market player might squeeze these positions by inducing a price movement that is the opposite of the current trend, forcing these positions to liquidate, or chasing their stop-loss orders.

Short-term trading margin

The value of cryptocurrencies is still quite erratic. The hazards of trading them are further increased by margin trading.

Therefore, aim to create short-term margin trading positions and keep an eye on them at all times (as opposed to spot trading or investment positions).

Additionally, keep in mind that you are paying recurring costs for the borrowed margin, and while though the daily fees might first appear insignificant, they can build up quickly.

Pay close attention to the basics.

The price of BTC may be significantly impacted by key market events, including decisions about Bitcoin ETFs, SEC regulations, the demise of exchanges, and other similar issues.

Keep in mind that these occurrences may have a significant impact on the market even though traders frequently focus mostly on technical analysis.

During times of high volatility, stay put.

When trading Bitcoin and other cryptocurrencies, extreme price swings can occur in both directions.

By touching your liquidation price, these wicks might wipe out your entire position, which is the risk of trading on leverage.

The liquidation price is more similar the bigger your margin.

Costs and Risks of Margin Trading in Crypto

You cannot end up paying the platform even though you are technically using borrowed funds because doing so would put the exchange itself in great danger.

Therefore, the most you might lose is your balance. It is commonly referred to as liquidation if this situation occurs.

The exchange will immediately close your position for you at the liquidation price. Here is one example.

Consider having $1,000 and borrowing $1,000 extra with that amount. You then spend the remaining 2,000 USDT on BTC. If BTC drops to a point where you would lose your borrowed margin (the $1,000 USDT that you borrowed), the position would immediately close.

In addition, your liquidation is affected because 1,000 is exactly half of 2,000.

We thus advise that your liquidation price will be closer to the entrance price the bigger the margin you borrowed.

It functions similarly to employing leverage while trading futures.

In addition to the expenses for creating and closing the position with the exchange, keeping a margin position open also involves paying continuous interest on the borrowed money, as was already explained.

Remember that the likelihood of losing more money rises as the potential for earning more money grows.

 

Disclaimer – The information provided in this article is solely the author’s opinion and not investment advice – it is provided for educational purposes only. By using this, you agree that the information does not constitute any investment or financial instructions. Do conduct your own research and reach out to financial advisors before making any investment decisions.