Bitcoin margin trading is an important concept crypto traders need to be familiar with before they dive into trading. Buying, selling, trading and even hodling crypto requires the interested parties to have as much information as possible as there can be unexpected risks and threats that they have to handle.
Opting for something such as margin trading can increase the level of risks and jeopardize the privacy, account, information and funds of the interested parties if they are not careful.
Therefore, it is important to understand trading Bitcoin for beginners so they can get a good idea of what to expect and how to tackle any challenges or obstacles they come across. This can also help them determine if they are knowledgeable enough to start margin trading.
What is Meant by Bitcoin Margin Trading?
It is always a good practice to learn as much as possible, before you dive into anything you are not familiar with. Margin trading can be placed in the same category.
This is one of the most popular types of trading and is also called leverage trading. This type of crypto trading offers huge opportunities to the traders to make big profits, however, the profits (if any) are accompanied by the possibility of big losses as well.
This is because, margin trading basically allows traders to borrow funds from brokers. The borrowed amount is called leverage, which is why, it is also referred to as trading with leverage.
By borrowing the funds, traders have the opportunity to open bigger trading positions as compared to the ones they would have opened if they only used the funds they had. Since the trading positions are bigger, the losses and profits will also be big. However, as a crypto trader you should always keep in mind that the profits are never guaranteed, even for the professional traders.
How Much Leverage Can a Trader Get?
One of the aspects to know about Bitcoin margin trading is amount of leverage a trader can get. The crypto industry is vast and offers numerous opportunities to the traders. Similarly, traders have the opportunity to either opt for leverage ratio according to their convenience and what suits them most.
The leverage ratio in the market can be as low as 2x or as high as 101x and it varies based on one crypto exchange to another. Therefore, if you are interested in trading with leverage you first need to check the leverage ratio or amount offered by each exchange that you consider as an option and then choose accordingly.
Is Margin Trading Risky?
Margin trading Bitcoin for beginners can be somewhat complex and risky, however, the risks it poses remains the same for every kind of trader. This is because when you opt for a high leverage you are in a position where you are likely to lose most or all of your funds if your trades do not go well. This will include the funds you borrow from the brokers, which can put you in a bad spot. This also brings forth the possibility that all your positions are liquidated.
Let us suppose that you opt for Bitcoin margin trading and choose 10x leverage. Now if the price of BTC surges 5% you will see a profit of 50%. Similarly, if the price goes up by 10% then the benefit you see is likely to be doubled. While this may seem like an exciting and beneficial venture, the opposite can also happen quite easily.
If the price of BTC drops 5% you will lose 50% of your funds and so on. Therefore, it is important to be careful about choosing the leverage amount and always begin with a small ratio so you do not end up losing all your funds.
What are Two Types of Margin Trading Positions?
Bitcoin margin trading enables traders to open two types of positions in the market. They are as follows:
- The Long Position
- The Short Position
The Long Position
This kind of position is opened by traders who speculate that the price of a digital asset, Bitcoin, in this case will surge in the future. This is similar to betting in favor of the asset.
If you open a long position and opt for 20x leverage then you are likely to get 100% if the price of BTC increases 5%.
The Short Position
Margin trading Bitcoin for beginners requires them to learn about short trading positions as well. This is similar to betting against a digital asset (BTC), opted for by the traders who speculate that the price of the asset will drop in the future.
In such a case, if you short sell BTC and opt for 20x leverage then you will likely get double the profit if the price of the asset drops 5%.
Bitcoin margin trading is not a simple concept and includes several details that are important for traders to know about, especially those who are new to crypto trading. Knowing the information mentioned above can help traders understand what it is and if they can opt for trading with leverage or not.