Margin trading is the most attractive form of trading for all traders. Whether forex, cryptocurrencies or any other market, the margin is always the first trading option for people with experience in the market for many years. Margin, in addition to being influenced by financial capital management, is also related to emotional management.
Today's article, VakaFx will update all the relevant information you need to know before you start trading margin.
1. What is the margin?
A margin is a form of trading where you use leverage to buy an investment for a larger amount of equity. A simple explanation of margin is as follows: For a small amount, you can open a larger trade, maybe several hundred times more. And then, when the price changes in your favor, you get huge profits.
But the possibility that the price does not change or change in a negative direction or move in an unfavorable direction for you, you will lose money and maybe deleted the account. Therefore, Margin can bring huge profits but also comes with huge risks.
2. Margin's opportunity
- Increase the amount of investment
- Diversify investment opportunities
- Increasing assets
Increase the amount of investment
This is obvious. You can control and trade large sums of money by borrowing money from the exchange. While only by your capital, purchasing power increased many times.
Diversify investment opportunities
Margin trading not only gives you the advantage of taking on larger positions than usual but also gives you the flexibility to build a portfolio.
Normally you have a small amount of money so it can only assume a position at that time. But with margin trading, you will be able to split your capital to open multiple trades at the same time. Therefore you have the opportunity to diversify your investment at a time of trading.
Margin offers the opportunity to participate in different markets at the same time of day. Thus getting more profit from your trading and account increases exponentially, and also easier to manage.
3. The risk of margin
In addition to the huge profits, we also need to fully assess the risks of margin. However, if it is managed in a disciplined way, you will avoid the risk it poses. So what is the risk of margin?
- High risk
This is the biggest risk that margin brings. To be able to control a position that is much bigger than the familiar position is certainly an extremely difficult thing. That is why you must follow very strict risk management and capital management rules when using margin.
- Stress due to emotions
Some traders cannot control the emotion of opening a position too large. Because the fluctuations in profits or losses are too big.
This leads them to make the wrong decision. Putting emotions in the middle of your trading decisions makes it easy to lose money. If you are unable to handle your major volatility then you should start with small leverage.
4. Terminology related to Margin
Margin has an interlinking term as follows:
- Margin: The money you use to buy a bigger investment
- Leverage: Using leverage is to raise your investment. For example, invest $ 100 with leverage x100, you are investing that $ 10,000.
- Volume: is defined by (Margin) x (Leverage).
- Position: The position includes Long (buy-in) and Short (sell).
- Liquidation: This is the liquidation price. For example, you choose the Bitcoin margin. When the price of BTC exceeds the liquidation price, all your invested capital will disappear.
5. How does Margin trading works?
For example, you start trading margin on the exchange with a capital of Bta$
Step 1: You perform technical analysis and give yourself a comment:
If you think the price will go up, you use the Long position.
If you think the price will go down, you open the Short position.
Step 2: Choose your leverage. For example, if you use a leverage of 10, the amount you borrow on the exchange is (10-1) * Bta = 9 * Bta.
We have a general formula for trading leverage (Leverage-1) * Amount of orders.
Step 3: The results of the investment as above will have two basic cases occur:
TH1: You want to close the order or the exchange to close the order when you reach the profit level Trading results are profitable. Money is added to your account
Case 2: The price moves against your position. And by the time it reaches the liquidation price, the exchange will recover the money you invest. As a result, you lose money.
Finishing: Both of the above cases after the closing order process require that you pay back the amount you borrowed and will pay an additional fee for your loan.
6. Experience in trade margin
Many people mistakenly believe that: Margin makes a huge profit so getting rich with it is not difficult. But they were wrong. Here are a few experiences shared by longtime investors. Hope it helps you:
- Investment capital: The own capital, the idle capital of yourself. Do not use borrowed funds to engage in margin trading.
- Leverage: Professional traders often say: "Instead of place an order of $100 order using X100 leverage, you should place an order of $1000 order using X10 leverage".
- Set strict trade discipline: It takes serious and serious discipline to expect to make money from it.
- Don't let emotions dominate: Set target profits. When the profits reach the desired level, you should stop or continue playing but extremely small leverage. If a long/short order loses, close the device to rest, and entertain the mind.
7. What is the Best Margin Trading Crypto Exchanges?
Currently, there are many Margin trading platforms. Here is a list of the best margin trading exchange available today:
Founded in May 2018, Bingbon received a $ 10 million investment from technology company Grandshores - a Hong Kong-listed company (stock code 1647.HK). Currently, Bingbon has a very low transaction fee, only 0.075%, (compared to Snapex is 0.15%)
It is an exchange that allows users to trade Bitcoin as well as some of the first other cryptocurrencies in the world. It was born in 2014 and is owned by HDR Global Trading Limited, based in Hong Kong. Regarding transaction fees, BitMEX will have 2 types of fees:
Maker Fee: -0,025%
Taker Fee: 0.075%
- Binance exchange
Binance has launched a futures trading platform with leverage of 125x. With high leverage like this can help you bring huge profits.
The lending interest rate on Binance exchange
Lending interest rate: 0.02% / day of Binance. (Borrow from BNB with an interest rate of 0.01% / day)
Leverage: Maximum 5x
Support coins: Quite a lot of coins such as BTC, ETH, XRP, BNB, Tezos, EOS, ADA ... In general, Binance has supported Margin for quite a lot of coins
- Sanpex exchange
Similar to BitMEX, SnapEx is also a margin trading platform that allows users to trade cryptocurrencies. Similar to BitMEX, SnapEx also has 2 order placing methods: Limit and Market. However, unlike BitMEX, SnapEx's fee will be much simpler. No matter which method the user uses, the level of leverage is 0.15% per transaction.
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