What Is Margin Trading? A Risky Crypto Trading Strategy Explained

Margin trading in both traditional and crypto markets requires the Certificate in Trade Finance Compliance (CTFC). https://www.xcritical.com/ Institutions that hold CTFC must adhere to regulations and ensure their customers are compliant with the KYC policies. Next, let me reiterate my earlier point – never trade more than you can afford. Once you’ve completed your margin trading, you are required to pay back the loan. Your loan will be automatically repaid using your collateral if your margin level decreases and a margin call is issued.

Safe and regulated in the U.S.: Kraken

We have already touched upon the process behind margin trading but let’s see how it works with a more concrete example. What about more complex modes of trading, like ones that involve derivatives and contracts, such as futures? There is also a host of other differences, so let’s briefly review them. This is probably because of the rules that have been put in place post purchase by margin trading cryptocurrency Circle.

What is a margin trade in crypto?

To begin leveraged trading in crypto, choose a reputable exchange, deposit funds, select your desired cryptocurrency and leverage level, place your trade, and monitor it closely. Remember that leverage can amplify gains and losses, so trade cautiously and consider risk management strategies. It’s a process of borrowing assets from brokers or crypto exchanges to execute trades that would normally be out of your price range. You trade with leverage, which means that you have as much of a chance to multiply your earnings as you do to lose big time. Margin trading in conventional financial markets carries inherent risks, but it can be even more perilous with cryptocurrencies.

Top Crypto margin trading platforms

The borrowed money is repaid after the trade, while the trader enjoys the profits of the trade in full. When trading on the spot margin exchange, Bitget charges a flat 0.1% for both maker and taker fees. For holders of its BGB token, the crypto exchange offers a 20% discount, making the fee 0.08%. The fee on its futures platform will incur a standard fee of 0.02% for makers and 0.06% for takers. There are no deposit fees for cryptocurrencies, but a fee is exerted on each crypto asset withdrawn. MEXC, launched in 2018, has become one of the premium places to trade digital currencies using leverage.

Margin trading, also called leveraged trading, refers to making bets on crypto markets with “leverage,” or borrowed funds, while only exposing a smaller amount of your own capital. Margin is the amount of crypto you need to enter into a leveraged position. When it comes to fees for margin and futures trading, it follows a maker/taker model that starts at 0.02% and 0.06% respectively. Similarly, there are futures trading fee discounts for holding KCS tokens.

BitDegree.org does not endorse or suggest you to buy, sell or hold any kind of cryptocurrency. Before making financial investment decisions, do consult your financial advisor. And if you feel like taking some steps back, we’ve got you covered – our guide to spot trading will explain the step-by-step process of how it works on the Binance exchange. So, you don’t have to rush into anything and can master the process one step at a time. The total number of current users in each cryptocurrency exchange platform. With this comes some very important homework – research, research, research.

Derivatives trading is typically categorized into two groups – options and futures. The latter is the one you’ll see mentioned hand in hand with margin more frequently. Futures contracts are binding agreements between the buyer and the seller to conduct a transaction at a certain price and time. Throughout this guide, we’ll examine the principles behind trading with margin. We’ll cover concepts like isolated and cross margin and see how these processes differ from trading on spot or derivatives markets.

Certain margin assets may be valued on a discounted basis using a “Collateral Ratio,” a percentage at which the asset is recognized as collateral. Enables the use of the entire margin balance for all open positions, appealing to those who seek to maximize their capital utilization. If you can just hold bitcoin and benefit from its price rises, why trade on margin? MEXC can be considered a worthwhile choice and alternative to the big-name margin platforms. However, MEXC is not available to use in the USA and the customer feedback on their experiences is average. Overall, OKX is a strong contender when looking for the best place to trade crypto with margin.

Leveraged tokens are not exclusive to Bybit but this trading platform has decent liquidity and volumes in comparison to its competitors. Bybit offers 2x and 3x leverage on long and short tokens which then can be traded on the spot market or as a perpetual contract. Not only can you borrow funds to trade on margin at Poloniex but you can also elect to be on the other side as the one who is offering funds up. In other words, you can be the margin provider and earn the fees that come with someone borrowing crypto from you.

In our experience, when traders take positions that are oversized, emotions will get the better of them sooner than later. Hedge With Crypto aims to publish information that is factual, accurate, and up-to-date. The information about a specific cryptocurrency exchange or trading platform in reviews and guides may differ from the actual provider’s website.

One of the great reasons KuCoin is a leading margin exchange is the wide selection of pairs to trade. There are currently more than 220 margin pairs with BTC, ETH, USDC, and USDT as the base collateral currencies. This gives users the flexibility to alternate between pairs to find a crypto margin trading opportunity. Moreover, the platform features cross-margin and isolated positions to manage account risk. In spot trading, you buy or sell an asset directly, and your potential gains or losses are limited to the amount you invest.

As for the fees, MEXC has a special promotion of zero trading fees for makers. There is a 0.06% fee if using a market order to remove liquidity off the platform). While the fees are competitive, there are better exchanges that have a larger selection of trading pairs.

At first you’ll get a margin call, demanding you add money to meet the margin requirement (say $100 for 5x leverage). And if you fail to act, the exchange will liquidate your position by selling your ETH to pay back the loan. Margin loan interest is the cost incurred by users for borrowing digital assets to trade on margin. The specific interest rate is determined based on demand, available supply, and the type of digital assets borrowed. Interest is incurred hourly and only on the loan amount (simple Interest).

• The higher the leverage, the less actual money you need to ante up from your own stack — but the quicker it can disappear if your wager goes awry.
• It is essential to conduct thorough research and practice risk management when engaging in crypto margin trading.
• Margin trading is essentially the practice of trading with money that has been borrowed.
• The exchange will indicate your margin level and how “healthy” it currently is; that is, how far you are from liquidation (losing your funds when you can’t pay the debt).
• The main difference between what is margin trading in crypto and what is spot trading on platforms like Binance and Kraken is the use of assets.
• Spot trading is the traditional way of buying and selling assets, where transactions are settled immediately (on the spot) at the current market price.

Kevin started in the cryptocurrency space in 2016 and began investing in Bitcoin before exclusively trading digital currencies on various brokers, exchanges and trading platforms. He started Hedge With Crypto to publish informative guides about Bitcoin and share his experiences with using a variety of crypto exchanges around the world. Binance Futures, OKEx, and Bybit are the largest derivatives exchanges in the world that offer Bitcoin products that can be traded with margin.

If you would like more information on their platform and trading products then you can read our Poloniex review. So, you have now decided that you would like try your hand at some margin trading. The next most important step is for you to find a platform that is best suited to your individual needs. This is important because the margin and futures products offered by these exchanges can be vastly different.

They are perhaps one of the oldest Bitcoin exchanges around having launched in 2011. Once your position has been opened then BitMEX has a more refined calculation for the maintenance margin. You won’t get a margin call from BitMEX but they will draw on your funds or, in the event of fund depletion, they will liquidate your position. When it comes to the leverage numbers at BitMEX, they are pretty high. For example, on their premier BTC futures contract, the minimum amount that you are required to put down is 1% of the notional. Leverage is a measure of how much your position will react to the movement in the underlying asset.

For all its upsides, margin trading does have the obvious disadvantage of increasing losses in the same way that it can increase gains. Unlike regular spot trading, margin trading introduces the possibility of losses that exceed a trader’s initial investment and, as such, is considered a high-risk trading method. Depending on the amount of leverage involved in a trade, even a small drop in the market price may cause substantial losses for traders.

In addition, new users on Binance who create an account can claim up to $100 for free using a Binance referral code. In the below list we take a look at some of the best-known crypto margin trading platforms. It is important to point out that these are by no means exhaustive and there may be other exchanges that offer similar products.