The rise of Margin Trading; has it impacted the cryptocurrency market?

Sagar Saxena blog September 12, 2019
margin trade

The rise of Margin Trading; has it impacted the cryptocurrency market?

  • Margin is the money borrowed from a broker to buy investments for trading purposes.
  • Margin trading can take place on Bitmex, Poloniex, Kraken, and Bitfinex.
  • YouHodler’s “margin trading suite” offers low fees and gives traders more options, and high profits.

Originally, margin trading was associated with transactions in commodity markets. The term ‘margin’ has multiple interpretations. In the security market,  margin means money borrowed from the brokerage company for the purchase of securities. In the crypto market, margin trading refers to buying more cryptocurrencies than one has the capital to buy. 

How Margin Trading in Cryptocurrency works – Leveraging

Margin trading, is in simple terms, just borrowing funds to leverage your bet. With the chance of extra reward, the risk also increases. Here is a theoretical example, one buys $10,000 worth of bitcoin with only $5,000 (borrowing 50% AKA leveraging 2:1 or 2x). The borrower puts down their own capital of $5,000 and borrows $5,000 from a third party(generally either borrowing from the exchange or other traders).

 A fee is usually levied on the money borrowed, which can also be considered as interest on the borrowing.  If one bet on cryptocurrency speculating that it will go up, and it goes down or stagnates, and one has to sit on the coin, he/she will rack up interest in cases where interest is charged. Moreover, that also means that one will owe what was borrowed plus any fees on it, even though the money was lost.

One can leverage either short or long. While short leveraging, one bet on the price going down (and if it goes up, one loses money). In addition, when one goes for a long position, the borrower bets on the price going up (and if it goes down the trader loses money).

Working on risks, ratios and bet size

Margin trading and cryptocurrency are both risky. Putting high leverages on cryptocurrency, one could find herself/himself owning or owing a great deal of money rather quickly (especially with low volume high volatility altcoins).

Solutions to risks

Margin trades have time limits. If you can’t execute your trade-in time, the leveraged portion of the trade may be automatically settled.  

Margin trading essentially works the same way on cryptos. Shorting can be very risky, especially on the margin, but it can also act as a hedge. If one buys a lot of bitcoin at a given price, one might want to take out a small short position as a hedge for protection in case the price drops. Using margin shorting as a hedge is considerably less risky than using leveraged positions to speculate on the price.

Where to margin trade?

Margin trading is allowed on  Bitmex, Poloniex, Kraken, and Bitfinex. Kraken and Poloniex are safe for US customers because of their sound regulatory status. However, each choice has its pros and cons. 

YouHodler is a firm that extends crypto credit lines to traders. It plays a key role in margin trading for the benefit of the trader as follows:

YouHodler’s “margin trading suite” offers low fees and gives traders more options, and high profits. This is not a margin trading per se but it has all the necessary tools in place for successful trading.

 One can Extend the Price Down Limit (PDL), or the Margin Call Level on a loan to reduce risk in the event of a price drop. If the price of the user’s collateral drops below a certain level, the user can keep their borrowed funds and prevent further losses. YouHodler keeps the collateral in exchange but the user can buy their crypto back without having to pay a fee.

Increasing Loan To Value ratio (LTV): YouHodler has the highest loan to value ratio on the market at 85%. If the user wants to increase their LTV, they can get more money from an active loan if the collateral’s price grows by increasing the LTV and getting more funds to buy more crypto assets.

To make the best of margin trading, Youdler’s margin trading suite is ideal for traders. You can check the suite and our products for traders on youhodler.com

 

 

 

 

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The rise of Margin Trading; has it impacted the cryptocurrency market?
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The rise of Margin Trading; has it impacted the cryptocurrency market?
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Author: Sagar Saxena

Passionate about Blockchain and has been researching and writing about the Blockchain technology for over a year now. Also holds expertise in digital marketing. follow me on twitter at @sagar2803 or reach out to him at sagar[at]coingape.com

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Sagar Saxena 210 Articles

Passionate about Blockchain and has been researching and writing about the Blockchain technology for over a year now. Also holds expertise in digital marketing. follow me on twitter at @sagar2803 or reach out to him at sagar[at]coingape.com

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