Bitcoin margin trading is one of the most popular crypto trading strategies to know about. Many crypto traders opt for this trading strategy because it offers the opportunity to get big profits. However, the profits are never guaranteed and if the trades do not go well then the profits can also turn into huge financial losses.
Margin trading crypto is highly risky and if you opt for it without any helpful or prior information then you can have a financially damaging and stressful experience.
Therefore, if you are interested in margin trading you need to fully understand the concept first and learn about the major relevant aspects. There are numerous terms that you need to be familiar with as margin trading any crypto asset is not a simple and easy task.
Here is a basic introduction of the concept and details of some of the most important and relevant terms.
What is Bitcoin Margin Trading?
Margin trading is a high-risk venture that can be quite damaging if you do not know what it is and what it offers. This trading strategy basically allows the traders to borrow funds from brokers. This makes it possible for traders to open bigger trading positions. Which can result in high profits or high losses, depending on how the trade goes.
Different exchanges offer support to different leverage ratios which are as low as 2x and as high as 250x. Therefore, you need to be careful about the platform you choose for crypto margin trading. As they vary in terms of safety and security as well as leverage ratio offered.
Other crucial aspects you need to know about, as a beginner. The major terms that are mentioned below in detail.
Collateral is like a guarantee that every margin trader gives to the exchange. Which certifies that the trader will be able to pay off the debt in case the trades do not go as planned. This is the total margin amount that a trader dedicates to either one or several trading positions.
The amount traders borrow from the brokers for Bitcoin margin trading is called leverage. As mentioned above, the ratio of leverage you can get from the brokers varies from one exchange to another. The amount of leverage you can borrow from the brokers also depends on a few factors such as:
- Exchange policy
- Margin amount
- Crypto asset you want to trade
A liquidation price is calculated whenever the traders open a trading position. It is calculated by the exchange they choose with respect to their margin and leverage.
As a crypto trader, if you opt for long positions you will lose all your funds if the price of the digital asset drops to the calculated liquidation price. This will result in the liquidation of your price.
On the other hand, if you opt for a short position and the price of the cryptocurrency goes as high as liquidation price then the margin for that position will be liquidated.
In Bitcoin margin trading, margin is referred to as the total amount a crypto trader has to put up for the trade. The amount of money you can borrow as a trader depends on the margin that you add.
This is an important term to know about as a crypto trader if you want to opt for margin trading crypto. This is when the crypto exchange wants the traders to add more margin. It is required to keep the position open for the traders. However, as a trader, if you are unable to meet the requirement the exchange can close your position at any time and cover the difference.
While crypto margin trading, you need to know about terms such as stop-limit order. When the price of a cryptocurrency exceeds or falls below a certain valu.traders can open a new trading position, which is achieved by stop-limit.
This also enables the traders to set a time during which they want the trade to remain open. Filing the stop-limit order can help you be sure that you enter a trade at the right time.
In Bitcoin margin trading, this is quite similar to stop-limit order but it allows the traders to close a trading position. When the value of the digital currency touches a certain price. This type of order is to ensure that you do not take any more losses than you can afford.
Take-profit is triggered when you are in profit . The price of the digital asset reaches the point you were aiming for. When you open the trading position you can set the take-profit manually.
Bitcoin margin trading is a popular trading strategy that brings a lot of possibilities for profits as well as losses. As a new crypto trader if you are interested in this trading strategy you should know the details mentioned above.