If you are new to crypto, you are probably also considering various trading options, including margin trading. Sadly, not all of the exchanges offer this, and even if there are some, it’s quite difficult to find one with the most favourable conditions. Read on to discover several options that are safe and also very easy to understand.
What is margin trading?
The classical definition states that margin trading is a process where you make a short-term loan in order to buy or sell more stock than you can with your own money. In other words, it increases your buying power.
But how does that apply to cryptocurrency? Well, there are lenders who actually give loans to the crypto traders so that the last can buy larger amounts of crypto. The lenders will then take the interest on these loans, which will actually become their profit. Some of the exchanges will even allow anyone to apply as a lender and lend coins to the people who want to buy cryptocurrency. On the other hand, these coins mostly need to be in the wallet of the exchange rather than in a cold wallet, thus lowering the security of the funds.
What is the cost of margin trading?
The math here is rather simple – the possibility to win more coins is equally great to the possibility to lose it all. The risk here is inevitable, and you should try margin trading only if you are prepared for losing the invested money.
Tips & Tricks for margin trading
First of all, you need to manage your risk. Make sure you do not let the greed take over, and keep in mind that risk is an integral part of margin trading. With cryptocurrencies, which are highly volatile, the risk is even higher. There are various strategies to minimize the risk, but in the end, you cannot predict the future.
Follow the prices of cryptos closely and know when to act. Margin trading of the crypto assets requires that you follow the news and watch the charts on a daily basis in order to get the idea when to trade on margin.
These are just two of the most basic tips that you can grasp, but it gets a bit more complicated than that. In fact, there are dozens of tips that you should take into account before you proceed to margin trading.
Where to find exchanges that offer margin trading?
There are various exchanges out there, but some of them are worthy of mentioning here, as not all offer the similar experience when trading on margin. We narrowed down our choice to three platforms – take a look.
CEX.IO is probably the best option for margin trading, as it is the most suitable for complete beginners. Most popular currency pairs are available here. You can trade Bitcoin, Ethereum, or Bitcoin Cash for fiat as well as for other cryptos.
The platform does not require you to open a separate account for margin trading, and you can use one account for all your activities on CEX.IO. You get to choose the leverage ratio. If you choose 1:2, for example, it means that your funds cover half of the position.
CEX.IO also uses the automation for such operations as borrowing. When you open a position, the exchange automatically applies the funds that you require. Also, if the market is not doing as well as you expected, CEX.IO will use the automated processes to close your position.
Bitfinex is a cryptocurrency platform that features various types of trading. It includes all major cryptos, such as BTC, ETH, EOS, XRP, XMR, LTC, and many others. Bitfinex provides leveraged trading that goes via the funding market based on a peer-to-peer technology.
When you register on this platform, you will be able to trade with the maximum of 3.3x leverage. They also have various types of orders, and this allows the traders to seize the opportunity in all types of situations.
All you need to do is to enter an order where you will ask to borrow an amount you want. You also get to set the rate and duration, which is also great. Bitfinex mostly takes everything up from here and tries to find the funding for you at the best possible rate.
Poloniex is a great exchange that is mainly targeted towards experienced users. They have numerous technical indicators and an outstanding API that can help you if you have a well-planned strategy for margin trading. Don’t worry if this is confusing at the moment – once you start trading, you will slowly explore new ideas and functions of the exchanges.
You will need to set up a separate account for trading on margin, and even a separate one for lending. This is a nice way to add a layer of safety to your crypto-related activities on this platform.
However, the bad news is that Poloniex has recently announced it is going to disable margin trading and lending options for the US-based users. This is due to the regulatory policies they are to comply with.
As you can see, margin trading is indeed an interesting activity that requires a lot of knowledge and a little bit of bravery. If you are not sure where to start, choose CEX.IO as your primary exchange, as it will offer you a helping hand with a lot of things when it comes to trading on margin.
Therefore, set your account and start doing a thorough research on how to increase your trading technique in the best possible way. When you master margin trading, you are in for a real rollercoaster ride through the world of the crypto market!