Cryptocoin Margin Trading is becoming more and more accessible. This has resulted in an increasing number of people looking to this style of investment.
We want to stress that all trading, including standard cryptocurrency trading, carries risk. While margin trading cryptocurrencies offer more potential profits, it also carries more potential risk. You can lose more than you invest. We recommend people research cryptocurrencies and get experience in standard trading before starting with margin trading.
To help you with your research, we would like to provide you with some resources. Hopefully, we’ll give you a high-level overview of margin trading with some links for further reading.
If you intend to commence margin trading yourself, please be careful. I can only suggest you don’t get greedy. Look to close out small wins more frequently than you might usually do in standard trading.
Why Margin Trade Cryptocoins?
Essentially, you are using your existing capital to leverage greater buying power. Margin trading allows you to buy more cryptocoins then you would otherwise be able to. A practical example of this could look like:
- Standard trading:
- The trader has $20,000AUD to invest. The current price of Bitcoin is $10,000.
- Say they believe the value of Bitcoin is going to increase, they could buy 2 BTC.
- If BTC increases 10%, the trader could trade back to AUD for $22,000AUD giving them a $2,000 profit (10% of their initial capital)
- Margin trading:
- The same trader has $20,000AUD to invest, but this time they use a 3:1 cryptocoin margin trading platform. The exchange is essentially ‘loaning’ the trader to purchase cryptocoin.
- Say they believe the value of Bitcoin is going to increase, they could buy 6 BTC using the margin (or ‘loan’) from their trading platform.
- This time, if BTC increases 10%, the trader could trade back to AUD for $66,000
- The trader repays the initial $40,000 margin, leaving them with $26,000AUD and a $6,000 profit (30% of their initial capital). In this example, you can see the benefit that margin trading gives the trader. It enhances their profits when they are right. It is also important to consider that it will enhance their losses should they get it wrong!
Where can you Margin Trade Cryptocoins?
Not every exchange supports margin trading. The big ones include:
- Advanced tools, primarily for professional traders. Bitmex offers extremely high leverage positions (and comes with equally high fees).
- Many people have lost large sums of money here. This occurs regularly enough that someone created a twitter bot to publish the big losses here.
- HitBTC, BitFenix, eToro, et al.
- These are standard exchanges that have begun offering margin trading to their users.
- Not the easiest, nor the most advanced. They are a jack-of-all-trades-but-master-of-none trading platform. These may be of interest to you if you trade with one of them already
- Huobi is a global exchange that has built margin trading into their platform.
- Importantly, I believe Huobi to be the most user-friendly whilst still retaining some advanced features. They offer education, training and an easy to use interface.
Trade where you are most comfortable. If you are starting out, we recommend checking out Huobis great educational series on Margin Trading. The infographic below was taken from their website and does a great job of explaining what it is.