It is no secret that cryptocurrency is a major wave in the economic world now. If you glanced at the crypto news, you will be amazed at the rate at which people are trading with cryptocurrency and making fortunes in the process.
In particular, margin trading is on the rise now more than ever. This business model is responsible for the wealth of thousands of people in and around the world. Along with possibility of huge profits, margin trading crypto has sizeable risks. This is the reason many prefer to stay as far away from it as possible.
Want to try your luck with margin cryptocurrency trading? You are certainly in the right place. Here is a simple guide you can implement but first it is vital to understand what margin trading is.
What is margin trading?
In simple terms, margin cryptocurrency trading is the process of making cryptocurrency trades using borrowed money. It allows you to borrow money against your current funds in order to trade on margin on an exchange. This means that you can leverage your existing cryptocurrency (or dollars) by purchasing funds and consequently increasing your buying power.
How Does It Work?
Let’s use an example to illustrate this. Assume you bought $5,000 worth of bitcoins in a margin trade with only $2,500 (50% borrowing leveraging 2:1). You put your $2,500 down and borrow $2,500 from an investor then after selling, pay a fee (or not). Because you are borrowing money, you technically owe it to the lender plus any other fees no matter the outcome of the trade. If your bet is on cryptocurrency going up, you will end up racking interest cases and sitting on your coin when it goes down or stagnates. This means you will owe the initial money along with the fees regardless of your loss.
What Are The Risks Involved?
Cryptocurrencies are volatile—they come with the huge risk of losing money. The risk is even greater with margin trading because you are on borrowed money. You have the likelihood to lose all the initial amount and even if you injected cash to avoid this from happening, you can cause substantial causes to stack up very fast.
Bottom-line
Margin trading crypto is not for everyone. If you are driven by fear and emotions, it may not be your cup of tea. Even if you are confident of your ability to make some money, it is recommended to do a proper research before placing a bet. Understand how to open and close trade positions, ratios, calls and all trading strategies and you might register success with it.
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