Margin crypto trading is an advanced trading strategy that is opted for by a vast audience in the trading community. This type of trading is a high-risk venture as it brings forth high rewards accompanied with high risks. There are also several aspects that are a part of it and are important for new margin traders to be familiar with.
Trading digital assets is difficult and risky in itself and opting for something like margin trading is likely to increase the complications and risks. However, margin trading can be less intimidating if you take time to learn as much as possible about the concept.
New margin traders should also know about major terms used while trading with leverage, some of which are mentioned below.
What is Margin Crypto Trading?
Before you move onto the important terms of margin trading you should know what it is. Margin trading is also called leverage trading as it allows traders to borrow funds from brokers, which are called leverage. The borrowed amount allows traders to open bigger trading positions that can either result in high profits or high losses, depending on how the trade goes.
Collateral is a way for you to guarantee the exchange that you will be able to pay back the amount borrowed even if the trade does not go in your favor. In other words, it is total margin amount that traders allot to one or multiple trading positions.
As mentioned above, leverage is the amount that traders borrow from the brokers. There are numerous crypto exchanges in the industry and a majority of them support margin crypto trading. However, it is crucial to know that the leverage offered is different on every exchange and it can be as low as 2x or as high as 101x. Therefore, traders should be careful while opting for an exchange to trade with leverage. The amount of leverage a trader can get also depends on exchange policies.
This is one of the most important terms to explore for crypto margin trading for beginners. Liquidation price is an amount that is calculated by the brokers, considering your leverage and margin whenever a new trading position is opened. If a trader opens a long position and the price of the asset drops to the liquidation price, the traders can lose their funds and their position will be liquidated.
For short positions, if the price of an asset increases and reaches the liquidation price, they will lose all funds and the trading position will be liquidated.
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Margin is the total amount a trader puts up for the trade in margin crypto trading. The amount of leverage a trader can get heavily depends on the margin they put forth.
As the term may indicate, a margin call is when a crypto exchange requires the traders to add more margin in order to keep the position open. However, if the traders are unable to meet the requirement, the exchange can close the trading position at any time to cover the losses.
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This is a type of order that allows the traders to open a new trading position if the price of a digital asset goes above or below a set value. Stop-limit order allows traders to set a time in which they want the trade to be open. Using this order type is beneficial as it helps traders in opening a trade at the right time.
A stop-loss order is also an order type, however, it is also a good way to manage and limit risks while margin crypto trading for beginners. This order type allows traders to close their trading positions when the value of a digital currency hits a specific price. As a trader, you can set a value in your stop-loss order and if the price of the asset you are margin trading falls below that set percentage, your trading positions will be automatically closed. This is the best way to make sure that you do not lose more than you can afford while margin crypto trading.
Take-profit (TP) is quite similar to stop-loss, however, it has to do with profits instead of losses. TP is triggered when the traders get some profit and it reaches the set value that they specify beforehand. As a trader, you can set the TP value manually after you open a position.
Learning what margin crypto trading is also requires the traders to know about some important terminologies that are used. Having as much information as possible about a complex concept such as margin trading can help you determine if you can opt for it and proceed.