Competent approach to cryptocurrency margin trading

Competent approach to cryptocurrency margin trading

Any active investment on a cryptocurrency exchange is associated with a certain risk, and when trading, you can lose funds – this must be taken into account. We do not call for using the opportunity of margin trading but just tell about this tool for entertainment and educational purposes.

How it works

The trader has $100. He is confident that Bitcoin (BTC) will show significant growth in the near future. At the same time, the trader is unhappy with the amount of potential profit that he can get from investing his $100.

To increase the income from a deal, you need to invest more money in it. You can get margin lending for such an operation on many popular digital asset exchanges.

To do this, the trader goes to a trading platform and buys an asset with a 10:1 leverage (trade with an amount increased by 10x of the initial investment). Thus, he was able to buy bitcoins not for $100, but $1000, thereby increasing his potential income, if the forecast turns out to be correct.

To trader’s delight, bitcoin showed growth. At the time of the completion of the transaction, the exchange took the loan and interest for its provision. The trader is left with the profit that he received from investing in bitcoin $1000.

What is margin trading?

Margin trading is a financial instrument that allows you to trade a large number of assets with a limited budget. It is a tool for maximizing profits through debt obligations.

By the way, this is trading with the use of means, which the trader provides on a certain cryptocurrency exchange, using its own money as a guaranty. The exchange, which provides the credit to the trader, does not forget about its benefit – for the use of the credit, the percentage is charged.

Types of trading positions

Long – this means playing up, first we buy and make a profit if the price rises, and then we sell. Opening long positions is a more understandable strategy for a beginner, which boils down to a simple principle “buy cheaper, sell more expensive”.

Short – means to keep a short position, in other words, first we sell, and then we buy back at a low price while making a profit. Shorting can be an effective investment strategy, but it is much more risky than long-term or averaging. Only experienced traders who can comprehensively analyze market dynamics should open short positions for large amounts.

Orders have other important parameters and conditions:

Take-Profit – this is the condition “Sell such-and-such a cryptocurrency asset when its rate is such-and-such.”

Stop-Loss – a condition in the order for risk management. Literally: “To avoid losses, sell such-and-such asset when the price falls/rises to a certain amount”. It allows you not to go into huge minuses.

Without the Stop Loss mechanism, a trader can lose the entire deposit in just a second and fall into a hole in debt if the liquidation does not keep pace. Yes, liquidation may not catch up with the rate if the trading speed is too high. Take this into account and set Stop-Loss.

Basic principles of successful leveraged trading

1) start small and grow gradually

Invested funds in margin trading should be treated as if they are no longer yours since you do not know in advance how your trades will go. Do not rush to immediately plunge into this trade, but try to create a small and understandable portfolio.

2) you always need a plan

A clear understanding of the rules will help you build strategies in margin trading. Strategy is exactly what distinguishes professional trading from gambling.

3) Before taking on margin trading, learn to trade on the spot market

Every trader must learn how to profit from the spot markets before taking up leveraged trading.

4) Use stop-loss and take-profit to protect your capital

If you trade using leverage and calculate your risks, then you should use stop-loss orders in your orders (to lose less in case of negative developments) and take profit (to lock in profits and exit the market). However, stop-loss orders can also work against you when major players push the price past a support or resistance level. When this happens, your order may not be triggered at the set price, and the trade may close at the worst price for you, which could result in a serious loss.

5) One straightforward strategy

As stated earlier, you must have a plan in place before taking margin trades. You must adhere to one effective and well-researched strategy that can produce consistently positive results. And that will be better than just knowing 100 strategies. This is not about anything abstruse from the world of trading: you simply choose a simple strategy that may have worked for you before, and which you are comfortable with. Decide on your favorite markets too, pick your favorite cryptocurrency and stick to your plan. If you don’t have a plan, then you shouldn’t be on the battlefield. Traders who tend to execute random orders that are not in line with the plan/strategy usually lose their money, especially in margin trading.

6) Trade quality is more important than volume

One of the common mistakes crypto traders make is trying to trade all the time, and this is not suitable for margin trading, especially under adverse market conditions. You should be patient enough to wait for trades in which the probability of winning is higher than that of losing your trades. Risk management always implies a timely exit strategy. When the markets are sluggish, the best thing you can do is to be patient and wait.

7) When to trade in BTC and when to trade in fiat

Usually, on exchanges, most altcoins are paired with bitcoin (BTC), and this is a great chance to accumulate bitcoins. However, when trading on margin during a bear market, it is better to use the US dollar, stablecoins, or other fiat currencies, because using a depreciating crypto asset can increase your losses.

8) Risk management

The odds of winning in trades are generally not guaranteed even with the most effective trading strategy and the best market conditions, especially with margin trading in cryptocurrencies. Therefore, proper risk management is very important to reduce losses. At the same time, the technical analysis seems to be an effective way of predicting prices that will help shape your strategy. Reducing the risk of interaction, position-sizing, setting stop-losses, hedging your positions and a competent approach to margin trading will help reduce risks.

9) Fixing earnings and diversifying investments

When you realize that you are making good amounts of money, then it is best to cash out some of the funds to fix your earnings. This means withdrawing some of your money from the cryptocurrency market and diversifying your investments. If you succeed in doing so, it means that overall you are a winner.

10) Take breaks and keep learning

Trading can take some getting used to, especially when you’ve learned how to make good profits from leveraged funds. It is possible that at some points you just need to relax with your family or friends, as well as take a break to learn new things in the crypto space. In general, it will be good for you, rather than just chasing profits in the market, since the process of your improvement should not stop.

Life hacks of trading with leverage

  • It is important to always monitor the market situation and control the adequacy of the account balance to cover transactions and positions.
  • If the position is unprofitable, it is better to get rid of it.
  • In case of unfavorable development of the market situation, you can receive messages from the broker – you need to respond to them promptly.
  • Optimize margin trading – the service of the Single Cash Position helps to do this, when using it, the costs of securing transactions will be lower.
  • Only trade what you can afford to lose.
  • Start with small leverage.
  • Do not enter all the deposits in one deal.
  • Always set stop loss.
  • Follow your trading plan.
  • Always keep track of your positions.
  • Do not buy fast-growing assets – you can run into a Pump & Dump scheme – the rate can fall as quickly as it rose.
  • Bitcoin is easier to trade than altcoins – It is not enough to rely on the ETH/USD chart only. While the chart may look good, the BTC/USD chart may look bad. And often, when BTC falls, other coins fall as well.
  • Rely on Fundamental Analysis. Read the news.
  • Usually, each crypto exchange provides users with a detailed description of crypto trading instruments, including margin. Individual articles and video tutorials may be provided, and even accounts with a test balance for training. Do not pass by and study this information on the exchange before you start trading.

Where is it convenient to trade cryptocurrency


Cryptocurrency margin trading is an advanced crypto trading tool where you can make big profits or lose funds in a minute. Before using this type of trading, you should study this tool in details and clearly understand all the consequences of its use.

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