Beginner’s Guide to Crypto Margin Trading: Why, How, and Where to Do It

Like some of the other centralized margin trading platforms in this list, ByBit is not available for American investors. If you trade with isolated margin, you will need to assign individual margins (your funds to put up as collateral) to different trading pairs, such as BTC/USDT or ETH/USDC. The benefit is you isolate the https://www.xcritical.com/ risk to specific trading pairs, while the downside is it limits your margin level. Traders can remove the risk of forced liquidation altogether by having stop losses in place.

Ways to Manage Margin Account Risks

What crypto exchanges with leverage sets ByBit apart is the ability to set up take-profit and stop-loss orders in one click. Let’s assume you’re using an isolated margin trade and have 100 USDT in your BitMEX account. Next, you open a position worth 5 USDT, and the exchange has a liquidation price of 9,500 USDT. An isolated margin allows you to limit the risks of a trade by restricting the amount of margin at each position. In this way, if your fund reaches liquidation price, then you lose the funds of that particular position only. Your equity in the trade is $1,000 (your deposit) plus any profit or loss.

Difference Between Margin Trading and Buying Stocks & Crypto

Something else that Deribit has on the margin side that is not on offer at other exchanges is what they call their “portfolio margin”. This is an interesting feature that allows traders to offset margin requirements on particular trades based on positions they have in others. Given that this is a leveraged position, you are able to increase your profits (and losses) from a given movement in the price of the asset. This is why margin trading can often be considered a double-edged sword. Typically, profits from cryptocurrency margin trading are subject to capital gains tax. However, calculating capital gains and losses from margin trading can be difficult.

Leverage Explained: What Is Crypto Leverage Trading?

Gain the necessary confidence you need before jumping into the deep raging water of leveraged trading. At Poloniex, your initial margin and maintenance margin levels determine your leverage, and you can get leverage up to 100X. It has a tier-based fee system, and you can also apply for the silver and gold tiers. You can open a position at a lower price and then close it at a higher price. Whereas going ‘short’ implies opening a position at a higher price and closing it at a lower price. The former works with or without margin; however, the latter only works with margin trading.

What is cryptocurrency shorting?

Still, margin funding requires users to keep their funds in the exchange wallet. So, it is important to consider the risks involved and to understand how the feature works on their exchange of choice. Hedge With Crypto aims to publish information that is factual, accurate, and up-to-date.

Isolated Margin vs. Cross Margin in Crypto Trading

These leverage limits as well as total borrowing limit will vary according to what pair you are trading as well as what account level you have been verified up to. If you wanted to get more information on this then you check out their margin borrow limits. This is essentially a rolling futures contract that does not have an expiry price.

How to Do Crypto Margin Trading Successfully

This is the minimum that is required to be held in the margin account once the trade has been opened. If the position falls below this then the trader will get a margin call from the broker. The exchange in question will have maximum leverage (or minimum margin) that is required for you to take the position. However 1x – 20x is more typical, with more conservative exchanges only offering up to 3x-10x. How much you can leverage differs by exchange and product type (for example, on an exchange BTC/LTC might be 5x, but BTC/USD 2x). Other specifics will differ by exchange too, so always read the documentation before you initiate margin buying.

When the Maintenance Margin Rate falls below 0 then Huobi will initialize a liquidation on your position. Those of you who have been in the Bitcoin market for some time will no doubt have heard of Kraken. They are perhaps one of the oldest Bitcoin exchanges around having launched in 2011. Leverage is a measure of how much your position will react to the movement in the underlying asset. So, in this example, if the price of Bitcoin moves by 1% your position will move by c. With that said, because you are borrowing money, you owe the money back along with any applicable fees, no matter what.

• In order to avoid the latter outcome, some brokerage firms will require what is called a “Maintenance Margin”.
• Some popular cryptocurrencies for margin trading include Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Litecoin (LTC).
• In crypto, futures and perpetual swap markets are more popular with margin traders.
• And that’s fairly easy to do, as long as Lady Luck keeps smiling your way.
• Traders do not need to borrow funds but they are likewise required to deposit an initial margin or collateral to open a position.
• Bityard provides you with leverage services through isolated margin trading.

KuCoin is our pick for the best crypto margin trading platform when it comes to looking for a wide selection of pairs to speculate on. Since it was established in 2017, KuCoin has amassed more than 20 million users worldwide. It is one of the best altcoin trading exchanges with a wide selection of markets including a spot exchange, futures markets, margin trading, and leveraged tokens. Overall, Kraken is a reputable option for qualified margin traders, however, margin and futures markets are restricted to US-qualified traders only which is a downside for international users. While the fees are competitive, there are better exchanges that have a larger selection of trading pairs. Before we get to the best crypto margin trading platforms of 2022, let’s quickly understand the concept of and difference between isolated margin trading and cross margin trading.

The strength of OKX lies in its trading platform which is sophisticated, modern, and straightforward to use. The contract and margin platforms can be easily selected using the primary navigation along the top menu. OKX provides its own charting platform, or users can opt for the professional TradingView charting suite or a simple depth chart. In all 3 modes, selecting a trading pair, entering the number of funds to use, and choosing a leverage amount is simple. The platform also shows the maximum buy or sell amount with the available funds in the margin wallet.

Other than that, margin trading can be useful for diversification, as traders can open several positions with relatively small amounts of investment capital. Finally, having a margin account may make it easier for traders to open positions quickly without having to shift large sums of money to their accounts. With the ability to take bigger positions, traders can make bigger profits (and losses) with margin trading. The borrowed money is repaid after the trade, while the trader enjoys the profits of the trade in full.

Not only can you borrow funds to trade on margin at Poloniex but you can also elect to be on the other side as the one who is offering funds up. In other words, you can be the margin provider and earn the fees that come with someone borrowing crypto from you. These can be considered analogous to spot margin trading with the difference being that you are trading an instrument that will be settled and closed sometime in the future on a future price.

Venturing into margin trading without adequate knowledge can swiftly lead to debt. It’s essential to have a solid background in cash trades before attempting to trade on margin to avoid potential pitfalls. Undeterred, Jimmy found a solution in margin trading on a crypto exchange that let him turn his $250 into a more impressive play.