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What is Margin Trading? Trade Margin Experience For Beginners

lnhngn 14/11/2021 14:17 668 views

What is Margin Trading?

Margin Trading (or Trade Margin – Margin trading) is a form of trading using financial leverage, allowing people to be able to buy and sell for a larger amount than they have. From there generate higher profits and of course the risk will also be higher than normal trading.

Currently, Margin Trading has also become popular in the cryptocurrency market, with the next trend being Crypto derivatives (Derivatives).

Basic Concepts of Margin

  • Margin Account: The amount the floor holds when you open a position. This amount is more or less depending on the leverage you choose.
  • Exchange Account: Regular trading account
  • Lending Account: The account that holds the money you lend to others. You can earn interest from the money on this account.
  • Position (Position/command):

Long: Buy at low price, expect high price to sell.

Short: Borrow to sell first, expect the price to drop to buy cheap and pay back.

  • Maintenance Balance: % of the play amount, required in order not to liquidate the account. The remaining amount (Capital – Loss) must be greater than this value. Poloniex claims 20%, Bitfinex is 15%. (Place 4, last photo)
  • Required Equity: Is the estimated remaining account value required to not be liquidated, similar to Maintenance Balance, but expressed in USD/BTC instead of %.
  • Liquidation/Account Burn: When the loss exceeds the allowable limit (Or Maintenance < 20% (15% vs Bitfinex).If you are Long, it will sell enough coins you bought earlier at market price. (currently very low) and return the balance to you.If you are short, it will buy enough coins you borrowed before at the market price (very high), then the balance will be returned to your account.
  • Margin Call: A notification when your account is about to be liquidated, sent to you by email for you to decide: Partial cut loss or armor injection to maintain.
  • Base Price: Estimated price for your order, when long, the base price is as low as possible, when short, the base price is as high as possible (buy must be cheap, sell must be expensive to make a profit).
  • LIQ Price: Estimate when the price reaches this mark your account will be liquidated.
  • P/L: Estimate your profit and loss according to current market orders. P/L % is profit and loss in %.
  • P/L fee/Funding Cost: Your loan fee
  • Kill Margin/Kill Short/Kill Long: Some exchanges or sharks hold large amounts of coins to manipulate the price, thereby pushing the price too high in a short time to burn the accounts of those who place bets. Short order (Kill Short) or push the price down really low to burn the accounts of those who place Long (Kill Long) orders. This action is collectively known as Kill Margin.

Advantages and disadvantages of Margin Trading

Advantages

For normal coin trade (spot trading), you can only make a profit by buying low and selling high. But for Margin Trading, you can make a profit regardless of whether the market is up or down.

At the same time, with the use of leverage, the amount of capital you can use to enter orders is much larger.

Disadvantages

With the ability to generate high profits compared to the amount of capital you have. In return, when Trade Margin, you will have to bear a very high risk.

For normal transactions, if you have the misfortune to buy high-priced coins and the coin price is much lower than the point of purchase. You still have a chance to wait for it to rise again.

As for Margin Trading, if the loss exceeds the liquidation price compared to the entry point. Your coins will be sold and you have no chance for it to increase again.

How does margin trading work?

When you execute a LONG/SHORT order, leverage x with capital Y. This means that, to execute that LONG/SHORT order, you will borrow from the floor the amount corresponding to the formula:

(x – 1) * Y

Note: This formula will be specified differently for each floor. Which floor you play, you should consult first.

After closing the LONG/SHORT order, you need to return the exact amount borrowed from the exchange plus 1 loan service fee.

In case you enter a LONG/SHORT order, but in fact the price goes against your prediction. When the price hits the automatic liquidation price, the floor will liquidate to recover the loan amount, the difference in loss will be deducted directly from your original capital.

Trade Margin Example

Let’s say, I have a capital of $10,000, Bitcoin price is at $10,000 and I predict Bitcoin will increase to $11,000.

If I trade normally with Spot Trading, I will make a profit of $1,000. But I want to optimize and increase the profit by 5 times. Therefore, I will open a LONG order with LEVERAGE 5x.

⇒ This means, I will create a BUY order at $10,000 with a volume of $50,000. In the most ideal case, Bitcoin goes up to $11,000 and I close a LONG (sell) position, I will have a profit of $5,000 instead of $1,000 in the normal trade.

It can be explained as follows:

When I made a Long order with 5x leverage, I essentially borrowed $40,000 from the exchange to execute a BUY Bitcoin order at $10,000, with a volume of $50,000 ⇒ I have 5 BTC.

Then Bitcoin went up to $11,000 and I closed a LONG position ⇒ That means I sold 5 BTC at $11,000 and got $55,000.

Next, I have to pay back the $40,000 borrowed from the exchange plus the service fee ⇒ As a result, my capital increased from the original $10,000 to $15,000 (+50%).

Each broker has a different Liquidation Price calculation for each different leverage. So before placing an order, you should find out how margin trading on each exchange works!

Reputable Margin Exchanges

Referring to Margin Trading, it would be impossible without the name BitMEX with the legendary leverage of 100x.

In addition, there are many other reputable exchanges that also support Margin Trading with the maximum leverage ratio as follows:

  • Binance (maximum gets a loan of $30,000)
  • Huobi (5X)
  • OKEx (5X)
  • Bitmax (10X)
  • Poloniex (2.5X)
  • Bitfinex (3.3X)

In each exchange, there will be a different way to calculate the fee and the amount of the loan, and the liquidation price. Which floor you use, please carefully read the regulations of that floor before trading.

Tips for using Margin trading

  • Only invest Margin when you understand it
  • Only invest x3,x5,x10 bets for newcomers to learn about Margin. Even if you are familiar with the x25,50 rafters, you should only enter a small amount of money and take profit/loss early because the higher the x ratio, the faster the fire will burn.
  • Divide the capital into small, each order only into 1 part of the capital. Absolutely not all in (do not enter the entire capital 1 time)
  • Should learn more technical analysis to make judgments and make final decisions.
  • Try investing with a small amount of capital (the floor allows you to invest minimum of 1$)…If you feel it is not suitable, then go back to trading in the usual way.

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lnhngn

"Don't invest in what you don't know. Learn first then invest"