Crypto Margin Trading — A Comprehensive Guide for Startups and Entrepreneurs
Short guidance in the Margin trading for the cryptoprenuers to confidently initiate their crypto leverage trading business
Googling about margin trading and leverage trading may seem a bit odd. Because I too had experienced it. The term and the concept are wonderful but those explanations given by the contributors in a deep financial tone are embarrassing. It might be clear for those people who have gained even a minimal knowledge of finance, but for normal people, it is harder than sudoku to understand. But see, Margin trading rules the trading market and as a crypto entrepreneur or a startup, you should know about these terms. You need not search for other sites for reference as you have got this. I am here to explain Crypto Margin trading in a 360-degree fashion.
This blog will be a comprehensive guide for all the entrepreneurs and startups in providing a knowledge base on What is crypto Margin trading, its potential benefits and risks and how it works, etc. in a brief way.
What is meant by Crypto Margin trading?
Margin trading initially refers to the investment a trader makes more than he can afford. Margin or to buy on the margin trade is to regulate the money that we borrow from the broker to buy the securities. Margin trading works like collateral for a loan you usually take. If you are about to buy a loan, you should submit collateral in which you have to pay a specific amount of interest for the collateral that the bank holds. Here margin trader should send a particular percentage of profit to the broker for the securities he sent to trade with. This margin trading is most preferred among the traders and stockbrokers as it comes with a huge return on investment.
Similar is the Crypto margin trading. The only difference is the usage of cryptocurrency in place of fiat currency. Buying capital from the broker in the crypto field is complicated as exchanges do not work in brokerage. Rather you can borrow a particular amount of cryptocurrencies as capital to trade in other cryptocurrencies. Either they can buy capital from a trader or borrow the capital from the exchange itself.
The basic difference between margin trading and normal trading is the leverage of profit that an investor can gain through marginalizing the trade. Through margin trading, the amount of profit would provide 100x more profit than the normal trade. That is the main reason why Margin trading is often referred to as “Leverage Trading”. Leverage is a kind of financial or trading support provided by the exchange to the investor.
Margin trading has been considered only for the slow volatile markets like the Forex markets, but with the adoption in the cryptocurrency industry, it is learned that it is best suitable for this fast-moving industry too.
Why we should choose Crypto Margin trading?
As of now, the Bitcoin price is growing exponentially high. Due to market volatility, we cannot say which cryptocurrency will emerge and which will not. So, with a normal trading scenario, the market volatility would be threatening and the profit level would be 1X. But with the margin trading, the profit level can reach up to a maximum of 100X, and the volatility would be dealt with by the exchange companies and managed and liquidated during the bear markets.
Working of Crypto Margin trading:
It works similar to the forex based margin trading. Firstly the trader who wants to invest in margin trading requests the exchange to provide the capital. In exchange, they pay a small amount of capital and get a huge capital from the exchange.
There are two types of margin that the trader should undergo to conduct the margin trading. One is the “Initial margin” — which is the initial deposit that the trader has to deposit to start the trade. The second one is the “Maintenance margin”. This is the margin deposit that one has to pay to maintain the margin trade in an active manner.
The leverage offered by the exchanges for margin trading differs from exchange to exchange. Some exchanges provide leverage up to 200X whereas others provide leverage of 10X, 20X, 50X, or even 100X.
If you are about to start your margin trading, the capital that you put as a deposit in the exchange would be held as collateral. After that, the exchange would calculate the strength of collateral and provide certain leverages to trade in the margin. If the trader is successful in generating the profits that would multiply to 100 times the capital, the profit would be shared among the exchanges and the collateral and profits would be taken by the trader. If the particular trade seems to go down in value, then the exchange will remind the trader to pay some more deposits to retain the trade. Some times, the exchange will liquidate the collateral amount if the trade is getting more low.
Choose the trading option:
While you are trading in the margin trade, there are two options where you can trade on cryptocurrencies. One is “Long trade” and the other is “Short trade”. Both trades can be done by the trader but most preferably, long trade will be considered during the bullish market and the short trade is preferred during the bearish market. If the trader thinks that the particular trade is going to increase in the future, he will go for Long trade and if he thinks it is going to decrease, he chooses the short trade mechanism.
If the specific trade reaches the level below the specific point of the threshold, then the exchange will proceed with the margin call. In that aspect, the exchange will request additional funds to hold the trade, or else they will liquidate the funds.
Choosing the best Crypto Margin trading platform:
There are certain factors that you should consider while choosing the best crypto margin trading platform. Firstly, if you are a trader and planning to undergo a margin trade, check the fee structure of the particular exchange and the initial and maintenance deposit procedures. Secondly, the number of cryptocurrencies and the leverage ratios should be taken into account. Third the popularity of the exchange. It is best to undergo a margin trade of less capital with a popular exchange than a high trade with a pretty unfamiliar exchange.
If you are an exchange owner, irrespective of your popularity, you can promote the traders to undergo margin trading by providing attractive leverage options and reduced fee structure. Check the KYC and AML regulations on the area of operation of your exchange before initiating the margin trading for your platform.
How do you do crypto margin trading?
For newbies, it would be a complicated process. But I can guide you through this. There are four steps involved if you are aspiring to do margin trading. The steps may vary from one exchange to another, but as a common matter of fact, these four steps are the most prominent ones used by any exchanges in the entire world:
- Funding process
- Opening a position
- Trading screen navigation.
Challenges of Crypto margin trading:
There are certain challenges too involved in the crypto margin trading process. They are
- They are unregulated and contrasted.
- They are highly volatile.
- The higher the leverage, the higher the risk.
Wrapping it up:
Margin trading is one such great opportunity for those startups, small businesses, and entrepreneurs to kickstart their cryptocurrency investment. Despite those minor risks and challenges, Margin trading is a viable business opportunity. Choose the best cryptocurrency margin trading platform and put your potential capital to leverage greater returns on investment. All the best for your trading business venture.