Updated: Oct 4
Author: Irem Eren
Publication date: 21.09.2023
*This post may contain affiliate links, which means I may receive a small commission, at no cost to you, if you make a purchase through a link*
Crypto markets usually have high volatility. However, news, regulations, or other significant developments can affect the markets unexpectedly. As a result, such volatility can be a major threat to investors, especially those who indulge in risky transactions like margin trading.
Margin trading, or leverage trading, allows investors to borrow funds to purchase more shares of an asset than they could with their own money. When you buy on margin, you essentially leverage your investment, meaning you can keep more shares than your funds. So, this amplifies your purchasing power but also exposes you to larger potential losses.
Before you buy any cryptocurrency, you should always do your technical analysis on platform such as Tradingview.com . With the premium plan you will receive access to many useful indicators and other tools and there's no doubt that it's important to analyze the chart before you invest in crypto.
If you have observed trend lines in a specific asset, you can analyse and predict how it is likely to continue. In addition to this, the key is to enter into margin trading only when you have compelling evidence to believe that the asset will continue to rise.
If you want to start Leverage trading, it's important to choose a good platform such as Binance or Bybit. Great thing is that these both platforms besides leverage tradinging, offer also a spot trading and it's super easy to transfer funds from spot to your leverage account! Both exchanges have a very userfriendly interface so even if you are beginner, you won't find it difficult !
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Investing with borrowed money might seem attractive, but it has drawbacks. To minimise this, consider building your positions over time rather than all at once. This strategy is particularly useful in volatile markets like crypto, where prices can change dramatically in a short period of time. So if we go back to margin trade, two types of collateral are used.
If your account value falls below a certain amount known as the maintenance margin, you will be faced with a margin call.  This is a demand from your brokerage to add more money to your account. After this, your brokerage can also close out positions to bring the account back to the required level.
Failing to meet a margin call is disastrous. When the brokerage closes out the open positions, the account is brought back up to the minimum value. It often occurs without your approval. After this, your position will liquidate.
Such actions can compound your losses and even result in the total loss of your invested assets. To protect against sudden this kind of market downturns, you should use stop-loss orders. These automatically sell your assets when prices drop to a certain level, preventing disastrous losses.
Who Should Consider Margin Trading?
Margin trading is not for everyone, especially newcomers to the investment world. The risks associated with leverage can result in significant losses, particularly during a market downturn. Even professional traders think twice or more when buying on margin. Additionally, brokerage firms often charge commissions for these transactions, further amplifying potential losses.
Margin trading comes with substantial risks, like margin calls and potential liquidation of your investments . So, It is paramount to follow market news and developments and to exercise caution.
The Golden Rule of Margin Trading: Risk Management
Make sure you are financially secure enough to handle potential losses, and utilise risk management strategies to minimise losses. Always remember, with great power comes great responsibility. Besides, risk management is key to success in margin trading, whether you're experienced or new.
If you don't feel ready for a Margin Trading, don't worry.
You can try a spot trading on Coinbase.
Get £8.21 for your trading. To sign up click here
To sum up: Both Spot trading and leverage trading may be a great way to make money online but, we need to manage the risk properly and choosing a good exchange platform is crucial! There's no doubt that all 3 exchanges: Coinbase, Binance and Bybit are worth to try!