Margin Trading (Part 2)
Hello all
Today is the last and 2nd part of margin Trading.
We have heard about margin Trading and some more basic things of trading. But we are not much aware of those.
I am trying to write them and explain with you all .
Hope you all will read this one too.
What is Liquidation?
Liquidation is a very important term when it comes to Bitcoin margin
trading.
Let's assume a trader opens a long position, Liquidation is a stage when the
price drops to a threshold limit where all the margin will be used. Users can
change the liquidation price by depositing into their account and more
contracts to the position, if user unable to reduce the liquidation and the
price hits the liquidation price then the position is automatically closed by
the exchange.
The trader will lose all the margin (Initial investment without leverage) of
the trade. The liquidation price is different for different leverage values, for
2x the liquidation price around 50 percent below the buying price and for
10x the liquidation price is around 10 percent below the buying price.
Source
Different Bitcoin Margin Trading
Platforms/Exchanges
There are many cryptocurrency exchanges that allows users to trade with
leverage, few of them are only dedicated to Margin Trading.
• Binance (Have a lot of trading pairs)
• Bitmex (Only Margin Trading)
• Deribit (Only Margin Trading)
• Bitfinex
• Poloniex
• Kraken
• Huobi
• OkEx
Advantage of Bitcoin Margin trading
The main advantage of Bitcoin Margin trading is that the profits are big and
quick because of big positions and leverage. A trader can earn a good
amount of money with small movement in price. Bitcoin margin trading
gives users a chance to test their skills and patience.
Disadvantage of Bitcoin Margin Trading
Trading on margin is highly risky and the cryptocurrency market takes the
risks to a new level. A small drop in price results in a big loss. The risk
increase with the leverage taken, high leverage means more risk. Traders
must use stop-loss in each trade to reduce the risk of losing all funds
(Liquidation). Stop-loss gives users a second chance to overcome losses.
Margin Funding
Users that not want to take high risk into leverage trading can earn from a
different way known as margin funding. Some trading platforms and
cryptocurrency exchanges allow the feature of margin funding where users
can lock their funds to other traders that are using leverage trading.
There are some terms and minimum requirements to earn from margin
funding. The requirements may differ from exchange to exchange. The risk
to lock the funds for margin funding is low because some time the exchange
can manipulate the price to forcibly liquidate positions. The user funds are
stored on the exchange wallet so there is a risk of hacking. Users should
store their Bitcoin in cold wallets or hardware wallet. Here is the list of best
wallet to secure the privacy of a user.
Conclusion
Margin trading is a tool to make quick profits in short term. If leverage
trading used properly with risk management the portfolio will be increased
with goof RoI (Return on Investment).
However, Margin trading is very risky and there is a risk of losing
everything in a single trade with a small drop/up in the price. Traders need
high skills and risk management techniques. The volatility of the
cryptocurrency market increases the risks.
Thanks all.
I will come again with an another topic,till then bye.