How to Leverage Your Trades Using Crypto Margin Loans
By: Genson C. Glier
Tags: Bitcoin

If you don’t have a lot of cryptocurrencies like Bitcoin or other altcoins, you have the option of leveraging the resources that you already have, so you can make maximum use of them. The benefit of this is that you will be able to earn more from your investments without owning the resources that you’re using. However, keep in mind that since this is a risky venture, it’s not recommended for everyone.

What is Margin Trading?

When you’re margin trading, you can open with leverage. For instance, we began our margin trading using 2x our leverage. Our foundational assets had gone up by 10%. We were able to make a 20% profit because of the 2x leverage that we used. If you’re conducting a standard trade, you will usually use leverage of 1:1.

It’s possible to carry out margin trading because of the lending market. Lenders are willing to lend traders money to invest and earn a profit. The additional funds make it possible for the traders to make more money than they would otherwise have made. The lenders gain as they earn interest on the money that they lend out. There are some exchanges, for instance, Poloniex, where it’s the registered users who lend out the funds. But there are cases where it’s the exchange itself that lends out to traders. For example, in Poloniex, any registered user is free to lend out altcoins and Bitcoin and earn interest in the funds that they have lent out. The major disadvantage of this is that as a lender, you will have to keep your coins in the exchange as opposed to keeping it safely in your own wallet.

Margin Trading Risks

When doing margin trading, the costs that you should expect to incur include the interest charged on the borrowed money, plus the fees charged by the exchange. The higher your chances of making more profit, the higher your risks of losing money. The most money that you can lose is the whole amount that you invested in opening the position. This is what’s referred to as the liquidation value. This is the value where your position is automatically closed so that you don’t lose the borrowed amount. You could end up losing only your own money that you have invested.

For instance, if you’re doing standard trading where you are using leverage of 1:1, your liquidation position is zero. The higher your liquidation is, the closer it will be to the purchasing price. For example, if you have Bitcoin worth $1,000, it means that you acquired one Bitcoin at the ratio of 2:1. That means that your position is $1,000. Also, you will borrow another $1,000 to trade with. This means that your liquidation value will be $500 because this is where you will lose the $1,000 that you initially invested plus the fees that you will be charged. Margin trading might also involve trading against the market.

Margin Trading Tips

Manage Risk : You will have to control yourself when you’re doing margin trading so that you don’t get overtaken by greed. Decide how much money you are willing to risk since you can lose all of it forever. Clearly decide what your closing position will be, making a profit or setting a stop loss.

: You will have to control yourself when you’re doing margin trading so that you don’t get overtaken by greed. Decide how much money you are willing to risk since you can lose all of it forever. Clearly decide what your closing position will be, making a profit or setting a stop loss. Watch the Market : Cryptocurrencies are quite volatile. Your risks are even higher when you’re doing margin trading. Consequently, the best thing to do would be to have short-term leveraged position strategies. In addition to this, even though the fees charged for daily margin trading are low, it can add up to quite a large amount over the long term.

: Cryptocurrencies are quite volatile. Your risks are even higher when you’re doing margin trading. Consequently, the best thing to do would be to have short-term leveraged position strategies. In addition to this, even though the fees charged for daily margin trading are low, it can add up to quite a large amount over the long term. Substantial Movements: The price of cryptos can greatly rise and fall in any direction. The danger in this is that when the price falls too much, it can reach your liquidation value. This is likely to happen when your leverage value is quite high, consequently making your liquidation value quite close. The best thing to do would be to take advantage of these dips in prices to set closing target positions, with the hope that the price falls will get to them, so that you will be left with a good amount of profit.

Exchanges That Allow Margin Trading

Nowadays, a lot of exchanges allow margin trading. However, as a crypto trader, it’s important that you reduce the number of crypto coins that are held in exchanges. This is because exchanges are usually common targets for hackers. A lot of exchanges have been hacked in the last couple of years. The most recent big hacking that took place was the hacking of Bitfinex in 2016. The hackers managed to steal one-third of the Bitcoins that were in the exchange.

The major advantage that margin trading provides you with is the ability to open in increased positions, even if you don’t have many bitcoins that you own. This makes it possible for you to reduce the amount that you keep in the exchange. For instance, if you have 5 Bitcoins in your portfolio and you want to hedge against the risk of Bitcoin’s price reducing, you could increase your portfolio by up to 40% by going for a 10x leveraged position. To open this position, you will only require a tenth (10x leverage) of what you need. This means that you can only have 0.2 Bitcoins in the exchange. This leaves the rest of your Bitcoins securely stored in your wallet.

Bitmex : Bitmex has become quite popular within a short period of time, and a lot of people use it a lot. This is one of the exchanges that offer a large amount of leverage, giving a margin trade of up to 100x for both long and short trading. It’s quite easy to use, and the customer support is quite good.

: Bitmex has become quite popular within a short period of time, and a lot of people use it a lot. This is one of the exchanges that offer a large amount of leverage, giving a margin trade of up to 100x for both long and short trading. It’s quite easy to use, and the customer support is quite good. Plus500 : Plus500 is a platform that can be used all over the world. You can use it to trade many things like stocks, Forex, commodities, indices, and options. You can trade Bitcoins and other major altcoins (Ethereum, Litecoin, Ripple, Bitcoin Cash, etc.) The main benefit is that these have been fully regulated by the Financial Conduct Authority FRN 509909. The company also offers 24–7 customer support to their customers. You can register with the company and directly start to trade after you have transferred money through credit card or wire transfer. You can set up margin leverage in the ratio of 1:2. It’s easy to get started since you can use the demo account to practice free of charge. Just keep in mind that you are at risk of losing your capital when you are trading.

: Plus500 is a platform that can be used all over the world. You can use it to trade many things like stocks, Forex, commodities, indices, and options. You can trade Bitcoins and other major altcoins (Ethereum, Litecoin, Ripple, Bitcoin Cash, etc.) The main benefit is that these have been fully regulated by the Financial Conduct Authority FRN 509909. The company also offers 24–7 customer support to their customers. You can register with the company and directly start to trade after you have transferred money through credit card or wire transfer. You can set up margin leverage in the ratio of 1:2. It’s easy to get started since you can use the demo account to practice free of charge. Just keep in mind that you are at risk of losing your capital when you are trading. Poloniex : This is the biggest cryptocurrency exchange. No US dollars or BTC is used on this site, rather 11 altcoins are traded. You can get a 2.5x leverage. If you are shorting, you will be charged a high-interest rate.

: This is the biggest cryptocurrency exchange. No US dollars or BTC is used on this site, rather 11 altcoins are traded. You can get a 2.5x leverage. If you are shorting, you will be charged a high-interest rate. Bitfinex : You can get leverage of 3.3x on this exchange site that has the greatest volume of BTC and USD trade. The interface of this platform is easy to use.

: You can get leverage of 3.3x on this exchange site that has the greatest volume of BTC and USD trade. The interface of this platform is easy to use. AVAtrade: You can trade BTC and other big altcoins on this site. This site is like Plus500 and is well regulated. You can also make use of their free demo account.

Introducing BlockLoan

People who borrow money from BlockLoan can use the borrowed cash as leverage. It’s quite normal to use leverage in the stock and bond market. This is usually done to increase the potential of profits that are earned.

For instance, when one is trading in the stock market, they can opt to buy Facebook Inc. shares. To get more money to trade with, the investor can pledge these shares to have more money to buy more shares. The shares are used as security for the loan that’s advanced to the investor. The investor then buys more Facebook Inc. shares with the borrowed money. This arrangement allows investors to own more shares than they would otherwise have been able to afford.

The investor can keep borrowing money until they no longer have enough shares to pledge, to be given more money. The investor then waits for the prices of the shares to go up and then they will close their position and repay their loans. They will be left with their original shares. When the investor leverages their funds, they can earn 200–400% more profit than they would otherwise have been able to, given their original capital.

Leveraging Token Portfolio

You can also use leverage when trading cryptocurrencies. Since this is something that’s still new in the market, it’s just a matter of time before we see how leveraging plays out when it comes to cryptocurrencies. It will also be interesting to note how leveraging will affect the cost of cryptocurrencies in the market. For better accountability, it would be best if coinmarketcap could be more open to members of the public about the amount of pledged assets and underlying tokens.

Is Margin Trading a Good Idea?

You should only get involved in margin trading if you’re an experienced trader, you have a purpose for margin trading, you like hedging, and you have carried out due diligence. This is because it can be quite stressful to lose money when you’re trading cryptos, but you will feel worse losing money that you have borrowed to trade with. This can greatly increase your stress levels.

However, if you don’t like taking high risks, just like us, then make sure that you read up lots of information on margin trading for the exchange where you want to trade. You should also have a good understanding of the opening and closing margin positions, margin ratios and calls. You should have a trading strategy in place and be quite conversant with technical indicators.

Ratios, Risks and Bet Size

Margin trading cryptos are quite a risky affair. If you don’t handle it well, you might find yourself in deep debt within a short period of time. Unlike traditional trading, you can find your initial capital outlay completely wiped out. Also, the faster you leverage, the faster you can lose all the borrowed cash. For example, if you get a 4:1 margin and the position drops by 25% from your initial opening, your margin will be called in, and all your money will be gone.

For instance, if you put in $25 of your own money and you borrowed $75 to invest, it means that you can only afford to lose a little less than $25, taking into consideration the fees charged. If the price goes high, then you can keep your position open for as long as you can since you won’t be risking the borrowed $75. But if the price drops, then the liquidation rate will be based on how fast you leveraged, unless you add in more funds. If you have an 8:1 leveraged position, it will be called in twice as fast when you get to a 12.5%, and when you do a 2:1 position, then it will be called in when you get to 50%. It’s possible for you to add more funds to prevent your position from closing but you could find yourself spiraling out of control and losing more money.

Margin Trading and Taxes

Since traders are regularly making capital losses and gains, they are subject to the short-term capital gains tax. However, if you hold onto your cryptos in the long term, then you will avoid such taxes and take advantage of long-term capital gain rates.