Margin trading: 10x the crypto for new traders

Margin Trading is one of the forms of trading that brings attractive profits. This article will provide instructions on how to invest in crypto with this form of trading. Let’s learn more about margin trading with Crypto Trading to 10X the amount of crypto assets.

Margin Trading Overview

First, let’s learn about how Margin works and the pros and cons.

What is Margin Trading?

Margin Trading, is a form of trading that utilizes financial leverage to help traders buy and sell tokens with more capital than they have. Although it brings attractive profits, it also creates higher risks than other forms of trading.

Explore the Pros and Cons

Advantage:

• High profits in a short time with a small capital: The crypto market is extremely volatile. In just 15 minutes, the value of a coin can increase or decrease by up to 10%. Margin Trading allows you to take advantage of leverage from 10x to 125x to maximize profits. The higher the leverage, the greater the profit.
• Unaffected by market trends: Market ups and downs have no impact. Traders can make long-short trades and take advantage of high leverage to increase profits.

Defect:

• Crypto prices fluctuate unpredictably: Margin Trading is heavily influenced by crypto prices. If the coin price increases as predicted, traders will gain a lot of profit. If the price moves contrary to expectations, traders will suffer huge losses.
• Not for inexperienced traders: For beginners, analyzing and predicting price trends will often have limited accuracy. You will be exposed to more risks if you use high leverage ratios. It will be difficult to avoid heavy losses if the market reacts contrary to predictions.
• Loss of position: In case the market moves against expectations, traders will face the risk of being forced to liquidate orders due to insufficient balance in the account. You may lose your initial margin deposit. In addition, there may be many other costs when executing margin orders, making the loss even heavier.

See more: Instructions for using margin effectively for trader

Important Components of Margin Trading

To be successful with Margin Trading, you cannot ignore understanding the following 3 components:

Minimum margin

Minimum margin is translated as Minimum margin. The minimum margin is the smallest amount of money you are required to have in your account. Without this amount, you will not be able to maintain an open position.

What is the initial margin?

The initial margin is the minimum amount of money a trader needs to deposit to open a position. The initial margin is determined by the coin trading platform. It can vary based on the platform’s regulations and the type of asset. For example: To open a position with a loan of 10 BTC and an initial margin of 60%, you need to have at least 6 BTC (60% x 10 BTC) in your account.

Maintenance margin

The maintenance margin is the minimum amount of money that a trader must maintain in his account at all times. It is considered as the deposit that the trader must maintain compared to the position value. If the position value falls below the maintenance margin, you need to deposit more money into the account. In case there is not enough money in the account, the risk of automatic liquidation will be 100%.

See more: Open Bybit account – Explore crypto exchange

How to Invest in Crypto with Margin Trading

Let’s go through the important terms in crypto investing.

Terms to know when investing in crypto with a margin

• Leverage ratio: This is the amount of money you can borrow depending on the value of your collateral. For example, if you have $1,000 in collateral with 10x leverage, you will be able to make a trade of $10,000.
• Margin call: A notification sent from the exchange to remind you to add collateral if your balance falls below the minimum requirement.
• Liquidation: Your collateral is liquidated when the margin falls below the minimum requirement.
• Position: There are 2 positions Long and Short in Margin Trading. When predicting the crypto price to increase, the trader will open a Long position and vice versa.

Secrets to conquer effective Margin trading

Understanding the rules of the game will help you avoid liquidation:

1. Create a separate trading fund for margin positions. Spending only a portion of your total capital will help you avoid financial hardship when the market moves against you.
2. Set a stop-loss. Set a price in advance that triggers an automatic exit order. This will limit your losses if the market reverses. Let’s say you buy 1 BTC at $20,000 and use 5x leverage. Set a stop-loss order to sell when the price drops to $18,000. This will only expose you to a maximum loss of $2,000 instead of $4,000 if the price drops sharply and you don’t set a stop-loss. Your entire capital will also be liquidated.
3. Take profits at each increase. Instead of waiting until you reach your target, you can sell a portion at each increase. For example, you can sell 1/2 at 25% interest. Sell the next 1/4 at 50% and keep the rest. This way, you will secure some of your profits and minimize your risk.
4. Don’t rush to recoup. After a big loss, it’s tempting to put all your money into it to try to recover. However, this usually only leads to more losses. Stay calm and reassess the situation. Look for new entry points and re-enter the market rationally.
5. Practice hedging. Consider taking a short position to hedge against losses in your long position. If the market goes down, the short position can offset the loss from the long position. Once the market stabilizes, you can close both positions.
6. Don’t jump in with high leverage right away. Take your time to learn the necessary skills and gradually increase your leverage.

Comparing Margin with other forms of crypto trading

There are many different forms of trading in the market: Wyckoff Trading, Crypto Arbitrage, Crypto Futures, Spot Trading, etc. Some complex forms will require a lot of knowledge and in-depth technical analysis. To have a balanced comparison, this article will focus on evaluating the differences between Margin and Spot Trading and Short Trading. The common point of these 3 forms is that they are easy to perform suitable for inexperienced traders and do not require in-depth technical analysis.

Margin Trading and Spot Trading

Spot Trading is the most basic way to invest in crypto and is suitable for beginners. The process of buying and selling crypto takes place right now, at the price available on the market. In other words, coins are transferred directly from the buyer to the seller and vice versa.

Compared to Margin Trading, Spot trading has the advantage of low risk. The reason is that all transactions are executed at the current market price. However, due to the lack of financial leverage, traders can only execute transactions with their capital. Spot trading also faces market risks without the support of contract conditions or leverage.

Margin Trading and Short Trading

Short Trading involves borrowing an asset and selling it in the hope that its price will fall. The seller then buys the asset back at a lower price and returns it to the lender. The trader pockets the difference in profit. Short selling is often associated with margin trading because you are borrowing the asset to sell it. However, short selling focuses on profiting from a fall in price. Margin trading, on the other hand, can be used for both long and short positions.

summary

The article has summarized the most important information about Margin Trading. Hopefully, you have grasped the basic knowledge about this form of trading. If you are interested in other forms besides margin trading, don’t forget to follow the Crypto Trading blog.

FAQs

When should I do margin trading?

Do margin trading when you have mastered the basics. Also, learn how to cover the situation of the exchanges. Especially recognize the signs of Margin increase or decrease to consider investing.

How much capital should I start with to invest in crypto?

The crypto market is very flexible in terms of initial capital. If you are new to the game, you can start with a few hundred thousand. Once you have experience, you can increase it to a few million or tens of millions if you reach an expert level.

Should Crypto Newbies Try Margin Trading?

If you are new to crypto market theory, don’t risk margin trading. Be patient, learn, and observe more to understand the market and the rules of the game.