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Queconomics – Crypto enthusiasts for years have enjoyed margin trading crypto. With margin trading, they can borrow additional funds to open more significant trades.
For a set capital, risk-controlled and efficient margin trading can increase profits. In addition to the opportunity to trade with borrowed money, traders look further for the considered asset and sell it short.
In the beginning, margin trading may overwhelm. As mentioned before, with the concept, traders can earn capital and access increased purchasing power over their existing account balances.
Terminology in Margin Trading Crypto
There are some basic terms in margin trading. Understanding these terms will make it easier to run it and reach your goal.
1. Collateral
This term refers to the funds you have in the account of your margin trading crypto. With this, you can convince the broker that you can pay off your debt.
2. Margin Call
A margin call is a request from your broker that you need to add more funds to your account. And if you fail, your crypto positions can be forcibly sold by them.
3. Stop-limit Order
In this conditional trade, you are required to set start, stop limits on the target price of the transaction and the timeframe within which the order can be executed. Depending on your preference, if the price goes down or up, the trade is cancelled.
4. Stop-loss Order
This term is a helpful tool for leveraged trading. With a stop-loss order, you are allowed to fix the limit until you can take a loss.
If it is fixed to 5% and the price of the asset drops to that amount or more, then the asset is immediately sold. And there will be only a 5% loss left.
5. Trailing Stop
It is a kind of stop-loss order where you can lock in profits in margin trading crypto. Trailing stop is helpful for traders who want emotions to take a backseat when determining when to exit a position.
6. Going Short and Long
Traders are expecting the crypto price to increase immediately. This is going long. Contrary, going short is the opposite.
When traders are about going short, meaning that they bet the crypto price will fall. By this, traders are usually intended to save profits from the falling crypto assets.
Pros and Cons of Margin Trading Crypto
The profit potential of margin trading is the centrepiece of its most significant advantages. Assume that you have used the leverage of 100x and won the trade. The profit earned will be equal to the investment of 1000 BTC.
In some trading platforms, you will be allowed to choose the amount of comfortable leverage for you and work from home. This trade will enable traders with small investment capital to open multiple positions.
The biggest downside is if you lose funds as your trade is unsuccessful, you will still be obligated to pay your broker. If the losses are significant, you run the risk of spending everything you have.
This is where stop-loss plays its role. The prime concern is to know the way to use the tools at your disposal. Margin trading is not like regular spot trading. It is accompanied by possible losses that are higher than the trader’s initial investment.
It is because it has been considered a way to be taken in the field of trading that has a high risk. It depends on the amount of leverage used in starting the trade. Even a tiny drop in the price causes incalculable losses.
If used correctly, the margin account can present leverage trading that can help portfolio diversification and profitability. Undoubtedly, for those who wish to maximize profits, the valuable tool is margin trading crypto.