Margin trading has become increasingly popular in the digital asset industry.
When you trade Bitcoin with leverage, you can maximize your profit potential while taking more risks with your positions.
Furthermore, it allows users day trading crypto to earn considerable revenue even on smaller price movements.
In this article, we will take a look at margin trading along with its benefits and potential risks involved for those who trade Bitcoin with leverage.
What Is Margin Trading?
Margin refers to the funds borrowed from a crypto exchange or a brokerage firm to long or short a specific asset on the trading platform.
For that reason, margin trading is the practice in which you trade an instrument using money borrowed from third parties (e.g., a broker, exchange, or other traders).
As a result, you have access to greater capital, which you can use to increase your potential profits as well as to amplify the effects of successful trades.
However, borrowing funds to trade Bitcoin with leverage has very different terms than, for example, getting a personal loan at your bank.
While you don’t have to deposit additional funds into your account – as the exchange uses the assets you have in your margin trading account as collateral – the service provider will liquidate your assets without prior consent if you suffer too much losses.
In such a case, when your margin account’s value falls below the exchange’s required amount, a margin call will occur. As a result, you will lose all of your collateral.
And the more leverage you use to trade Bitcoin, the stricter the exchange’s requirements will be for margin traders.
In most cases, you can trade digital assets on a margin with leverage between 2x and 100x. If you hold 0.1 BTC in your exchange account, a 100x margin would mean that you can borrow funds to trade up to 10 BTC.
What Are the Benefits of Trading Bitcoin With Leverage?
Below, we have collected the advantages of margin trading crypto:
- More profits: When you trade Bitcoin with leverage, you are using more funds than what you have in your account. For that reason, successful trades on a margin will bring you more profits than ones without leverage.
- Short trades: Without borrowing funds, you can only enter long positions for digital assets. On the other hand, margin trading allows traders to profit from bearish price movements by shorting crypto.
- Profits on smaller price moves: Traders with short-term trading strategies like scalping aim to generate profits on small price movements very quickly, which they can achieve with margin trading. Moreover, trading Bitcoin with leverage also allows traders to generate income even in times of low volatility.
- Diversification: With margin trading, traders have access to increased capital, which they can use to diversify their funds into more assets to maximize their gains and limit their risks.
Are There Any Risks of Margin Trading Crypto?
While trading Bitcoin with leverage certainly has its benefits, it also comes with risks for traders.
The first is the most obvious one: the more profits you (potentially) earn, the increased risks you face when trading assets on any market.
For that reason, if the asset’s price you trade takes a significant hit, it could trigger a margin call in which the exchange liquidates all your collateral.
As mentioned before, the risks of margin calls are greater when you are using more leverage for your trades.
As part of your crypto trading strategies, we recommend placing stop-loss orders to minimize the chances of margin calls, limit your losses, and protect your positions when trading Bitcoin with leverage.
Trade Bitcoin With Leverage at Digitex
Margin trading is an excellent practice for traders to diversify their assets, maximize their profits for winning trades, as well as to short cryptocurrencies.
However, margin trading involves more risks than the spot market. Therefore, it requires traders to leverage more disciplined crypto trading strategies that involve handy tactics, such as placing stop-loss orders.
Another great way to reduce the risks of margin trading is to trade crypto for free. By paying less fees, you maximize the chances for winning trades while keeping 100% of the profits.
The good news is that you can do exactly that on the next-generation zero-fee Bitcoin derivatives exchange Digitex.
Sounds great, huh?
Trade Bitcoin with leverage at Digitex now to enjoy a zero-fee margin trading experience!