In 2024, the trend of leveraged margin crypto trading will continue to rise. Through April, prices of cryptocurrencies website were high which meant huge profits for the traders. The prices soon dropped again and it was a different story.
Leveraging money is inherently risky, no matter how the market seems to be moving, or how talented you may be. It’s crucial to know the risk of margin trading.
What is margin trading? ?
Margin trading is all about trading on borrowed or leveraged funds. For a loan to be granted, you must have the collateral or margin first. This is a type of security that is held by the exchange until you pay back the loan. Based on the rules of cryptocurrency exchange, you are allowed to take out loans that are more than the amount of capital you have. It is the proportion of what you’ve invested versus what you get out, which is referred to as leverage.
In order to start leveraged trading within traditional markets, traders must interact with brokers. Margin trading is much easier in the cryptocurrency world. The platforms that allow leverage can be used by anyone and make the process simpler. With leverage trading, potential gains are greater, however at the same time there is a chance that the potential loss is more substantial.
What’s the way margin trading work?
Leverage trading on Bitcoin or any other cryptocurrency allows traders to boost their earnings by as much as 100x. BitMEX is among the best platforms to offer trading leverage to traders for various cryptocurrencies.
Margin trading transactions are classified into two different categories where one is long and the other one is short. For a long-term trade is when the trader purchases an asset for a low price in the hopes of selling the asset at a greater price. And, on the other aspect, the short option is quite the opposite of this. The seller sells the product in the hopes of acquiring it back at lower cost.
In both of these instances, the trader earns profit from the difference in price of the crypto asset when either closing or opening a position.
Let’s get this figured out with an example:
If you were to invest $10,000 in a crypto asset, like Bitcoin with 1:10 leverage which would make the margin 10 percent, you’d need to invest $1,000.
You would have to invest $10,000 in trading cryptocurrency that isn’t leveraged. That’s a significant amount greater. If the value of Bitcoin increases, however your profit margin stays the same.
That is, when leveraged trading Bitcoin is much lower in capital is needed upfront to earn the same gain. It is important to remember that the reverse is the case if Bitcoin’s cost was to drop.
If you think that Bitcoin will increase in value, you should consider investing. It is possible to profit by establishing an open position with 10x leverage with a $1000 margin. The position is then equated to $10,000. A 10% increase in the price of BTC will yield $1,000 in profit (minus any fees).
The return on equity (ROE) of the trade – the amount of profit and margin will be 100 percent. Your profit at a ROE of 10 percent will be $100 if you did not leverage. Isolated Margin and Cross Margin
BitMEX has two ways to trade margins:
Cross Margin
Isolated Margin
You can change between the two on the exchange platform by changing your leverage slider within the box labeled “Your Position” located just to the left of the trading section.
You can leverage cross-wise by moving the slider left. Alternatively, you can also use the isolated leverage for the remaining numbers listed as (2x 3x, 4x, 5x or 5x.)
Remember that the leverage isn’t able to add to your position automatically. When you move the slider, it’ll change the amount of space is available. It is necessary to move the slider.
Change the amount manually.