Comprehensive Crypto Margin Trading Guide For Beginners February, 2023

Also referred to as leveraged trading, margin trading involves estimating cryptocurrency markets and “leveraging” borrowed assets while initially putting up just a small portion of your finances. The margin is the amount of collateral in cryptocurrency needed to enter a leveraged position.

Last updated Jan 20, 2023
8 minute read
Written by Nikolas Sargeant
Bybit Contract Trading Exchanges
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166 0.06% 0.01% BTC 0.0005 Yes Yes No 2018
GET UP TO $600 IN REWARDS
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Phemex Contract Trading Exchanges
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139 0.06% 0.01% BTC 0.0004 Yes Yes No 2019
GET UP TO USD 180 DEPOSIT BONUS
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PrimeXBT Contract Trading Exchanges
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35 0.05% 0.05% BTC 0.0005 No Yes No 2018
GET UP TO $500 IN SIGN-UP BONUS
Visit
KuCoin Centralized Exchanges
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624 0.10% 0.10% BTC 0.0005 Yes Yes Yes 2017
GET UP TO 500 USDT IN SIGN-UP BONUS
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BitMEX Contract Trading Exchanges
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24 0.05% -0.01% BTC 0.000079 No No No 2014
GET UP TO USD 75 DEPOSIT BONUS!

Many investors and traders have found success in trading cryptocurrency. But what if you could leverage your position on digital assets by X5, X10, or even X100? Crypto margin trading allows users to open highly profitable positions without holding the capital required.

The team here at Cryptowisser has put together an extensive crypto margin trading guide for beginners to help them get off on the right foot in the market. This thorough guide will highlight the top exchanges offering margin trading and help readers to understand the benefits and risks involved. Before entering a margin position, it’s important to learn the essentials.

  • Professional traders often use margin trading, so learn the methodology before you begin trading.
  • Margin trading has the potential to lead to significant gains.
  • Leverage can be used to open a trading position by borrowing funds from the exchange.
  • It involves intense volatility and is often extremely risky.

Also referred to as leveraged trading, margin trading involves estimating cryptocurrency markets and “leveraging” borrowed assets while initially putting up just a small portion of your finances. The margin is the amount of collateral in cryptocurrency needed to enter a leveraged position.

Margin trading can be opened in two ways:

  • Short position: You can place bets on the price decreasing
  • Long position: You can place bets on the price increasing

When a trader enters a long position, they buy cryptocurrency, anticipating that sometime in the future, when its value increases, they can sell it and gain profits from the price disparity. Conversely, with a short position, an individual borrows cryptocurrency at the current price to buy it again after its price diminishes, allowing them to make money.

You will often see the ratios for leverage positions shown on trading platforms as 20:1 or 100:1. Meaning if an individual has $2,000 in their trading account and wants to open a long position having a 100:1 leverage ratio, they must have equity - from their funds - that is equivalent to 1% of their position size. The crypto exchange will then provide the other 99%. It’s important to remember that 99% isn’t free, which we’ll explain later when we discuss risk.

Margin trading crypto includes borrowing capital to make larger or more frequent trades. An important aspect of margin trading to bear in mind is what's referred to as the liquidation rate. When the market arrives at the liquidation price, the exchange will close a position automatically. This is done so traders will only lose their funds and not any of the funds given to them.

When trading with one's own capital, the liquidation price for a long position on an asset is zero. Yet, with heightened leverage, the liquidation cost ascends nearer to the traders' buy-in cost.

As an illustration, suppose a trader makes a long investment worth $100 in bitcoin, and its worth increases by 10%. The merchant will end up making $10 in profit (excluding any expenses). When the same dealer trades with a leverage of 5x, their gain would be $50 (10 x 5 50).

Leveraged trading in cryptocurrency may utilize the leverage of X10, X50, and even X100 on certain platforms (such as Phemex). Although this offers the opportunity to gain higher returns, it brings considerable risk.

The growth of crypto trading has opened the doors to a wealth of cryptocurrency exchanges offering margin trading. While we haven’t listed all of them on this page, some of the best for 2023 are listed below.

  • BitMEX - BitMEX is one of the world’s biggest derivatives exchanges, boasting a secure platform with an impressive trading volume. 
  • Phemex - A leading exchange supporting over 200 cryptocurrencies and tokens, focusing on leveraged trading. 
  • Bybit - The main function of the platform is its derivatives trading, while they also provide spot trading, staking, and other services.
  • KuCoin - Launched in September 2017, KuCoin boasts more than 8 million clients from 200+ countries and regions worldwide.
  • PrimeXBT - Primarily operating as a leveraged trading platform, PrimeXBT offers a range of trading options backed by a multilevel industry-leading security system.

Leverage can set trading amounts anywhere between X10 and X125. Any trade carried out using a leveraged position carries a level of risk, even more so when high leverage is used. The excessive volatility of the crypto markets makes margin trading in digital assets riskier than this trading technique might be with more traditional assets. 

One of the most popular short bitcoin (BTC) methods is to take out a cryptocurrency loan, then exchange it for an asset you anticipate won't decrease in value, like US dollars. If BTC were to plummet, you can purchase back BTC from the general market and use the funds to fulfill your loan. Since the cost of your BTC should be lower, you will have generated a profit—and can keep the remainder.

Short traders usually use leverage, meaning they borrow much more cryptocurrency than they possess so as to exploit the optimal gains from their short trades. Leverage trading holds considerable risk in that an exchange could necessitate the return of its finances if the market moves unfavorably against you. This is one aspect of margin trading that is particularly ruthless. 

Regarding any kind of investment approach, there are advantages and disadvantages related to crypto margin trading. We put this table together, which outlines them clearly.

Huge upside potential to earn significant revenues within a short window of time. Very dangerous, and crypto’s unpredictability further heightens risk.
Traders can create larger positions with less investment capital. Trading can lead to huge losses in a short amount of time. Frantic market fluctuations may cause trades to be terminated, resulting in a loss before traders can take action.
Offer a possibility to gain success during minor market shifts. The market demands precise timing.
Traders gain the ability to hold lesser amounts of cryptocurrency on an exchange. A trader should exit a trade when it has yielded a profit due to leverage amplifying market motions. Those who are inexperienced at trading can readily suffer major losses when taking out leveraged positions.

Beginners are encouraged to avoid margin trading, as losses can be significant, and any trader taking leveraged positions should have a rigid risk strategy in place before beginning. Traders should prepare a sound strategy before engaging in this trade setup if they are looking to make a sound investment.

To guide our readers along the right path, we’ve put together some beginner tips to help them ensure they have the right tools to start margin trading.

Risk Management: If you are trading on margin, establish distinct risk management policies, and be wary of hubris. Assess how much you would be willing to stake, as it can be lost completely. Establish thresholds for closing out positions, benefiting from gains, and, most importantly, draft stop-loss levels.

Start Small: Begin with a small investment when engaging in margin trading. By starting out slowly, you can build your confidence before diving into the depths of leveraged trading.

Use Stop Loss And Take Profit: Establish a financial value in which you want the trade to end your place, permitting you to safeguard losses and avoiding the probability of losing everything. Generating a return on your investments at certain price points will lower your total earnings, but it is an effective way to manage risk.

Pay Constant Attention: Crypto dealing can, at times, have huge changes that manifest in both directions, producing candle wicks. The concern is that the drop could reach our liquidation figure, which is possible when leverage is relatively large. Sometimes it’s best to remain glued to the screen throughout the trading process.

Don’t Revenge Trade: After incurring a loss in the crypto markets, it may be tempting to try and regain all of it in one trade, but consider the risks involved beforehand. Don’t go all in at once. Remember risk management and the importance of using your stop loss and take profit levels.

Keep An Eye On The Market: The value of Bitcoin may be heavily swayed by main crypto occurrences like rulings on a Bitcoin ETF, SEC protocols, and the like. Although many traders confidently depend solely on technical analysis, remember that these events could have a vital influence on the crypto space.

While margin trading may be intimidating initially, once you have got to grips with the process, you can take a more hands-on investment approach, and it can become a lucrative strategy. 

Don’t overdo things. While margin trading does not necessitate having the same amount of capital as other investment options, that does not suggest that you should risk money beyond what you can afford to lose. 

By establishing a stop loss and investing in only smaller amounts of actual leverage, the chances of incurring losses are minimized, and you give yourself more leeway. Take your time. As time goes on, your knowledge base will grow, and soon enough, you’ll be able to go into highly leveraged markets easily.

Author

Nikolas Sargeant

Nik is a content and public relations specialist with an ever-growing interest in Crypto. He has been published on several leading Crypto and blockchain based news sites. He is currently based in Spain, but hails from the Pacific Northwest in the US.

Bybit Contract Trading Exchanges
VG flag
166 0.06% 0.01% BTC 0.0005 Yes Yes No 2018
GET UP TO $600 IN REWARDS
Visit
Phemex Contract Trading Exchanges
SG flag
139 0.06% 0.01% BTC 0.0004 Yes Yes No 2019
GET UP TO USD 180 DEPOSIT BONUS
Visit
PrimeXBT Contract Trading Exchanges
VC flag
35 0.05% 0.05% BTC 0.0005 No Yes No 2018
GET UP TO $500 IN SIGN-UP BONUS
Visit
KuCoin Centralized Exchanges
SC flag
624 0.10% 0.10% BTC 0.0005 Yes Yes Yes 2017
GET UP TO 500 USDT IN SIGN-UP BONUS
Visit
BitMEX Contract Trading Exchanges
SC flag
24 0.05% -0.01% BTC 0.000079 No No No 2014
GET UP TO USD 75 DEPOSIT BONUS!