Topic: Margin trading of crypto currency (Read 203 times)

There are no contradictions.


Significant profits with small price movements can only be made using large leverage. Large leverage means an extremely close margin call line. In theory, this works and may seem like a good strategy, but in practice, such strategies do not last long and always end with a zero deposit.

This contradicts a little bit what you said above, no? If you think the market allows traders to grab a small piece of pie and usually turns back before most of them bother to take their profits, then it could be a good strategy to use leverages, don't you think? With leverages, you don't need to wait for large movements to get significant profits if you bet on the right direction. It's the main advantage of margin trading IMO, it allows you to make profits on smaller movements without needing to use a big bankroll for that.

Should beginners trade on margin?

Margin trading is suitable for experienced traders with risk management strategies and tactics. It requires the traders have a deep understanding of the global crypto marketplace. Before they start, beginners have to research margin trading strategies, exchanges’ safety, their rules, risk management rules, etc before they get started.

What is margin trading in crypto?

Margin trading in crypto is borrowing money from crypto exchanges to increase buying power in trades. These exchanges give leverage choices, such as 2X, 50X, and 100X, varying on different exchanges. Investors deposit funds to the margin account, referred to as the ‘initial margin’, select the leverage, and open a position.

For example, one only has $1000 and wants to buy $10000 worth of Bitcoin. He finds a trustworthy and safe exchange, like CoinEx exchange, to start a margin account with leverage 10:1. The exchange will lend the rest of $9000 and the initial margin is the collateral for this loan. The user will have $10000 purchasing power with the $1000 account and 10 times gains if it makes profits regardless of the interests and fees. The risk is not 10X but all put-in funds.

There must be a minimum amount of capital in the account to keep the position, referred to as ‘maintenance margin’. When it goes below the maintenance margin level, users will receive notifications from exchanges, referred to as ‘margin call’. Traders must deposit funds into the margin account to bring it back up to the initial margin level or sell assets to free up the margin from the trade. If traders can’t cover the margin call, exchanges will close the position by force, referred to as ‘force liquidation’.

Advantages and risks of margin tradings

Like other investments, margin tradings have benefits and risks based on leverage. Users short-sell when they predict the price of certain assets will go down, and long-buy when prices rise. Much higher gains are possible if the price goes as traders predict. When the market trend goes against the traders’ favor, traders will suffer losses from the margin trading.

Benefits:

- High-profit potential
- Enlarge purchasing power with a small margin account
- Diversify the crypto investment portfolio
- Hedge against downtrend pricing

Risks:

- High losses
- Risk of forced liquidation
- Hard for crypto newbies
- Owe interests

I wouldn't recommend it but if you do, it would be good to buy on margin while Bitcoin is low, but make sure you have enough to cover in case Bitcoin goes lower.  The worst time to buy on margin is when Bitcoin is at an ATH; many get rekt because of precipitous drops in price.

If we consider trading as an attempt to be smarter and more cunning than the rest, then there is nothing for a simple retail trader to do. It has absolutely no advantages, never has and never will. Many traders believe that their advantage is their unique strategy, but this is not an advantage, it is just an opportunity to stay afloat a little longer than the bulk of traders. The advantage is only for exchanges and market makers who see the entire map, not a pixel on it.

I have always viewed trading not as a place where you need to be smarter than the rest, but as an activity where you just need to have time to grab that little piece of the pie that the market allows traders to grab. All this activity lies in the right balance of greed and ambition. Very often, traders set goals that are too big to make a profit; as a result, the market may not reach such levels a little and turn around sharply. It turns out that the trader correctly guessed the direction of the market, but did not correctly calculate the exit point, he did not have time to take his piece of the pie, although the market allowed him to do so.

Margin trading has the highest volatility and as such the most riskiest form of trading. More than 80% of margin traders end up losing their trading account due to this high volatility rate. The remaining 15% who succeed aren't consistent with their profit. I will rather suggest trading without margin it will be easy to many trading account better without margin trading.

That's right, I don't take account retail traders, because I don't find it a rational occupation in the first place. Provided that you can only read public news and see charts, then I'd rather gamble my money in some casino, because it'd be more a more transparent and fair process.

They try to follow this direction. The direction is unclear for retail traders, and can be altered by professionals if they see most going in the correct direction.

This definition does not fit any retail trader who trades at home from his personal computer. What most traders do not know, only professional traders have, they are market makers who move the market in the directions they need. The rest of the mass of traders follows this direction.

I would rephrase a little. Trading makes sense only if you have enough money to wait out even the strongest market shocks. How many margin traders are able to wait out a 50% drop in bitcoin, which can happen in 1 day? They do not have enough balance to secure such a position, so they will either close their stop loss position or receive a margin call in which the entire deposit will be liquidated.

Margin trading-- and trading in general, makes sense only if you know something most traders don't. It is commonly said that it helps small fishes go big, but I kinda think it just makes them go extinct. Brokers, CEX, banks, and funds have enough data (such as buy and sell orders) to manipulate the price of a small-cap crypto and gain from all those who will have made a leveraged bet.

Margin trading is often chosen for a different reason. Because of the false sense of increasing opportunities for the trader. This is especially noticeable among novice traders who enter the market with very small deposits. They have big ambitions and big expectations, but little capital, and this is where margin trading comes in. Only it comes to the aid not of traders, but of exchanges that easily take deposits from such traders. It is no secret that many derivatives exchanges make the bulk of their profits not from commissions, but through liquidations, multi-million dollar liquidation cascades of traders' positions. This is where the paradise for exchange owners is.

Ibised to say that only engage on the trading pattern you're best at, this will help in a long way to avoid or reduce the level of losses, aside from being capital intensive this trading patterns is much demanding because you will need to give it all required time for speculation because just as a huge amount of money is involved it can make a awesome difference within a shorter period whereby you will need to quickly sell or buy within this short time, those that have years of experience and enough patience with capital opt in for margin trading.

Absolutely, my advice though is to just ignore it completely. It’s not something that anybody should really be doing. Simple dollar cost averaging over a sustained period can & probably will give equal, if not better profits over a long timescale. There is way less risk involved then.

Leverage trading is effectively gambling, too many people follow charts & models which always end up broken too.
Just DCA guys, it’s simple & very effective, it has a great track record too over time (main coins).

That's exactly why it makes even less sense to increase the risk of volatile assets by 5x, 10x, 20x, etc.
Inexperienced investors are only looking for those big profits without understanding how much bigger the risk of liquidation is as well. I don't even recommend standard trading to everyone, let alone getting yourselve involved in a risky activity such as trading with leverage.   

Margin trading allows "low funded" traders (who do have expirience but not enough funds) to have an extra edge over the market. You just gotta understand what you are doing and the circumstances involved.
Imo, OP isnt asking for advice here, he knows everything already about such type of trading. Read the post carefully.

Honestly, this thread was made to answer a question I saw a few days ago.
For those in the comments section. You're right it's very risky but also bear in mind that what didn't work for you might work for another.

Don't forget I also mentioned about the risk involved in margin trading. Dropped links too for those interested to read before venturing into it .

I don't think there's any part of crypto that doesn't involve taking risks, all we can do is learn how to minimise or manage those risk.

My advice, stay away from this altogether unless you are degen gambler.

Trading is risky and margin trading is more risky.

Because when you are trading at Spot, you use your actual capital for trading. Your loss is depended on your entry and exit price minus trading fee.

When you are trading Margin, you use your initial capital as a collateral to borrow more cryptocurrency to trade. Your loss will depend on not only entry, exit price, trading fee but also whether you will be liquidated if your position is very bad and your collateral has a big decrease in its value.

If you can not win with Spot trading, you can not win with Margin trading.

Margin trading amplifies risk. It should be only be utilized by experienced and well-funded traders.

       Margin trading is but one of the variety of channels through which crypto currencies can be conveyed.
 
       Margin trading is a trading conduct in crypto currency that involves the trading of assets using money provided by a third-party either by borrowing or adopting funds from other traders to build their engagements in the market. Plus, they also get a large amount of capital. Margin trading is a skill that is widely accepted in a steady market.

      There are two know ways of using margin in a trading account; cross and isolated margin trading. Cross margin also known as spread margin is the most commonly used margin mode. In the form of margin trading, the margin is distributed within open positions with the same settlement crypto currency. This method is important for traders who are obstructing existing positions and the stock purchase of the takeover target. Cross margin is determined through the total value of the asset and the debt in the Cross margin account. It's advisable to choose cross margin over isolated.
  
      Margin trading has a lot of advantages, but a notable benefit is that there is a greater profit for the trader based on the relative value of the trading positions. Same way it has its edges, it also has its drawbacks. One of them would be the risk of MARGIN CALL : {This is a situation whereby the trader is obliged to fund their account so as to reach the minimum margin trading requisite, and if by any chance they neglect the demand, then their properties will be liquidated without seeking any agreement}.
       This could propagate loss and mandate the production of higher return than the margin loan rate.
    
      For a trader to apply margin trading in crypto, they must first open an account either long or short position. If a trader is awaiting an expansion in the value of the asset, he'll have to go with a long position account, but if they expect less progress in the value of the asset then they can open a short position account. After that, they're required to make an advance payment also known as ( INITIAL MARGIN) this also stands as a little collateral.
      If you're interested on researching more on margin trading, use the links below.

   https://www.sofi.com/learn/content/margin-trading-crypto/

   https://www.binance.com/en/margin-trading

    https://www.coindesk.com/learn/what-is-margin-trading-a-risky-crypto-trading-strategy-explained/