In this article, we will look into what implications margin trading brings and what’s important to know before you start leverage trading Bitcoin or other cryptocurrencies.
A dear child has many names and you will find this kind of trading referred to as gearing, margin trading, stock credit or leverage. In short, margin trading is to invest borrowed money.
There are several players who offer gearing with cryptocurrencies. Here you must be aware that there is an extreme risk associated with this.
What is gearing?
Gearing an investment would mean to borrow money from your brokerage house to invest a larger amount of money you have available. By taking up credit you will, even with a relatively modest equity, invest large amounts and get a correspondingly high return when you hit. We enter the gear as a ratio such as (1:10).
If you have $1000 in equity and invest them in an altcoin that is credited $100 with a gearing on (1:10) you invest $10,000. If the stock price rises 10% from $100 to $110 you would have earned $100 (10 * 10) , but since you dig a margin trade and could buy ten times more shares, you earn $1000 (10 * 100) instead .
It is easy to see how gearing may seem alluring to many. The general man in the street usually does not have much equity that can be invested, and then gearing is the only way to earn the really big amounts. Some online brokers offer gearing up to 1: 400! Then you can make investments with $40,000 yourself with only $100 in equity. This is not recommended for cryptocurrency trading.
Risk of margin trading and leverage
As most of us know, return and risk go hand in hand. Margin trading gives accelerated profit when you hit, but it also provides equivalent accelerated losses when the market goes wrong.
Looking at the example above, by allowing the crypto rate to decline by only 10% to 90kr, you have suddenly lost the entire amount you invested. If the stock price drops more, you end up owing more money than the original investment.
There is therefore considerable risk associated with high gearing and one should be very aware of what choices are made before committing margin trading. It is recommended to read up on trading strategies beforehand to increase the chance of sucessfull trading. Timeforcrypto.com is a good source for information about trading for beginners through their podcast and blog.
Many of the webmasters will not be responsible for a greater amount than what is stated on your investment account with a given online broker. This can thus help secure you from uncontrolled losses when margin trading. If you reach the boundaries where the loss is similar to the capital you have available, usually the position you have ended immediately and the loss will be realized (liquidated).
Example for margin trading
Imagine that you do a trade with a 1: 100 margin. In this case, you invest 100$ in something, and with maximum gearing you can afford to trade with 10,000$ even if you only bet a hundred bucks.
This is an extreme example, and with such a high gear you will rarely succeed. On the other hand, it may make sense to use some gearing in some cases. A trader rarely needs to leverage hundreds of times the investment.
If you are going to trade with margin trading you must of course choose a web broker who offers this. Also, one should find a web broker that allows as high gearing as you want, as most crypto brokers offer fairly low gearing.
If you only want to try this without taking any risk, they also have an exercise account where you can trade fictitious money through a free demo (the above mentioned services offer a free demo of their services).
Where can I do margin trading?
There are several solid online brokers that offer magrin trading for cryptocurrency. Below we list a couple of them. All the players mentioned here are solid, safe companies that are strictly regulated and where your investments are completely safe.
Bitmex is the most liquid crypto margin trading platform in the world and allows its users to trade some of the most popular cryptocurrency pairs. At Bitmex, you can trade with up to 100x margin, and all contracts are done in Bitcoin (BTC). Here you can margin trade Bitcoin, Bitcoin Cash, EOS, Ethereum, Tron and Ripple.
A somewhat unusual webmaster that has become incredibly popular. It is based on a social platform where users can see what trades everyone else is doing. You can even set your settings to automatically copy the users with the best return. It is discussed passionately around the subject and there is much to learn here.
Etoro offers trading with the following cryptographic values: BCH, BTC, DASH, ETC, ETH, LTC and XRP
One of Europe’s largest online agents. Here you can trade anything from cryptocurrencies, ETFs, options, CFDs, commodities, currencies, stocks and funds. They give you a gear of up to 1:50 which should be more enough for any reasonable person.
Plus500 has a well-developed trading platform for browser, desktop and smartphones. They offer more than high gearing and a wide range of trading opportunities and analysis tools.
Plus500 offers trading with the following cryptocurrencies: BTC, BCH, ETH, LTC, XRP and IOTA