What Are The Main Advantages Of Margin Trading?

By Rishma Banerjee

If you are a cryptocurrency expert and already know about the cryptocurrencies you should invest in, you would, in all likelihood also want to know about the various technicalities, that may benefit your investment. One such way is by participating in margin trading, which is a way in which Cryptocurrency users can borrow money by leveraging their current reserve to trade cryptocurrencies “on margin” on an exchange. This increases the buying power and can be of two types: short, where you bet on the price going down or long, where you bet on the price going up. It can also be used to speculate, hedge, or to avoid having to keep your full balance on an exchange. So for instance, you can put down $25 and leverage 4:1 to borrow $75 to buy $100 worth of Bitcoin. However, this type of investment can be both risky and rewarding.

You may also read: Things To Know Before Investing In Cryptocurrencies 

Margin trading comes with a time-limit:

Borrowers cannot hold on to these stocks indefinitely, and thus these must be sold off within a certain period as stipulated by the exchange with an additional fee, failing to do which enables the exchange to settle the holdings by itself. Even though the crypto market is exceptionally volatile, margin trading is often intraday, which ensures that there remains no scope for the market to rise or fall too much, as the stocks have to be sold off, before that opportunity arises.

Many top exchanges allow margin trading:

Amongst the top cryptocurrency exchanges, many offer margin trading on cryptocurrencies which in a way ensures security and safety. Some of them are Poloniex, Kraken, Bitmex, Plus500, and AVATrade, Though the degree of leveraging differs from one exchange to the other, since these are a few of the best exchanges, their quality is ensured by the sheer number of people using them.

You may also read:  6 Things To Know About Margin Trading

Users have to fulfill specific criteria before they can margin trade:

Most exchanges, which allow cryptocurrency trading also have certain criteria which the users need to fulfill before they can participate in the said activity. This ensures that the users who can finally avail the service are genuine and thus lends this entire system a sense of reliability and certainty. However, the degree of strictness is varied, depending in the exchange. For instance, Kraken offers margin trading to all its 1 to 4 tired clients while on GDAX which is quite users must be an Eligibility Contract Participant according to the stipulations of Section 1(a)18 of the Commodity Exchange Act.

Though it is rather risky it can also result in high capital gains:

Given the changing trends in the crypto market, many are of the opinion that investing in the crypto market itself can be quite a dicey affair, but that hasn’t stopped millions of people worldwide from doing it. similarly, margin trading may be a risky bet, but it may also lead to the borrower reaping massive gains. Having said that, it is of utmost importance that extreme caution is maintained while participating in margin trading.

Investing in cryptocurrencies can be a risky bet in itself, and combined with the risk margin trading as a concept entails, it is best to remain cautious about what kind of bets and leverages one is making. To be highly ambitious might lead to extreme losses, which is why it is best to have a very good idea about before opting for this.

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Rishma Banerjee

Rishma is currently pursuing a bachelor’s degree in International Relations and has a special place in her life for sifting through all sorts of random trivia, thank you very much.

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