What is Crypto Margin Trading? – Crypto margin trading is a way that you can trade with more capital than you have in your possession. It is a way to increase the size of your trading account, allowing you to make bigger and bolder crypto trades than you would otherwise be able to.
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In order to be knowledgeable in this area, there are three key concepts you need to grasp:
1. Margin Loan
The term margin loan refers to the amount of funds that is lent to the trader by the crypto exchange or broker in order to carry out margin trades. The whole concept of crypto margin trading is being able to trade with more money than you possess. The extra amount exists in the form of a margin loan made between broker/exchange and trader.
2. Trade Leverage
The term trade leverage refers to the multiplier amount of the trade taking place. This usually starts at 2x the amount of actual capital being traded, and can range all the way up to 100x multiplier. The greater the leverage, the larger the amount of potential gain, but also the level of risk.
Of course, not every trade is successful, and the broker/exchange needs a way of protecting their potential losses. In order to protect against the downside of crypto margin trades that don’t work out as intended, the exchange sets a liquidation price. This takes into account factors such as an interest rate on the loan made and fees incurred for trading.
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