What to Know Before you Start Margin Crypto Trading?
As a trader, if you are inclined towards margin crypto trading then there are a few details and elements you need to explore before you begin. The crypto space is already a vast and volatile place, which makes it crucial for inexperienced traders to be mindful of certain factors if they opt for something as risky as margin trading.
This is a risky venture because of several factors. The kind of experience you have while margin trading depends on which exchange you opt for, how much leverage you choose, how familiar you are with the possible risks and a lot more.
Since the price movement of digital currencies is unpredictable, the trades you place as a margin trader can cause you more financial damage than profits. Therefore, here is a brief guide for margin crypto trading for beginners that addresses several details you need to know if you are interested and want to begin.
What is Margin Crypto Trading?
Margin trading is an advanced crypto trading strategy that basically allows the traders to trade with a much larger amount than they personally own. This is done by giving traders the option to borrow funds from the brokers. Opening a trading position by borrowing funds means the position will be bigger and can either result in high financial profits or losses, depending on how the trade goes.
Even though there is a chance to get good profits, they are never guaranteed and any possibility of getting high profits is always accompanied with the possibility to face high losses.
In short, this is a high-risk venture where you can be met with high risks and high rewards, which is why, it is imperative to know as many details as possible before you begin.
Example of How Margin Trading Works
The basic idea of what margin crypto trading is described above. However, if you take a closer look you will get a better understanding of the concept. The best way to do that is to consider an example.
The borrowed funds you can get from a broker is called leverage. This is why, this trading strategy is also known as trading with leverage. Now the leverage varies from one exchange to another, which means that the leverage ratio available for you can be as low as 2x or as high as 101x.
These details are crucial to be mindful of, which is why they are described in this brief guide for margin crypto trading for beginners.
Now let us suppose that you opt for 10x leverage for Bitcoin. In this case, if the price of the flagship crypto asset surges 5%, you will get a profit of 50%. Similarly, if the price of Bitcoin surges 10%, you are likely to get double the profit.
It is, however, crucial for every trader to know that while margin crypto trading, if the trade does not go well, you can end up losing some or all of your funds and profits. Therefore, it is important to carefully choose the leverage and always start with a low ratio.
Which Crypto Asset Can be Traded with Leverage?
As mentioned above, the crypto space is quite volatile and it can be difficult to predict how the price of a digital currency will move. Therefore, it is important to carefully choose a cryptocurrency to trade with leverage.
When it comes to margin crypto trading, it is only suitable to opt for digital assets that have a higher market cap than the rest and is ultimately more stable.
Even if you cannot be 100% sure of the price movement of such an asset, it is still a better option to go for a crypto asset that is more stable.
Different Margin Trading Positions to Know About
Margin crypto trading for beginners can be easier and more convenient if they are familiar with a few major terminologies. The more a new trader knows about different terms related to margin trading, the better their experience can be of trading.
As a new margin trader, one of the most crucial elements you need to know about is the different margin trading positions you can open. They are:
• Long Position
• Short Position
This is similar to betting in favor of an asset, which is Bitcoin, in this case. When a trader anticipates a price surge for a digital asset in the future they can open a long position. This allows them to get some benefits when the price surges. However, the profit depends on the leverage they opt for and if the trade goes well.
Opening a short position is like betting against an asset and is opted by traders who are not confident about a price surge for the asset. In this case, when the price falls the traders can get some profit, depending on the leverage ratio.
If you want to learn about margin crypto trading then you need to be mindful of a few things that are mentioned above in detail.
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