Margin Trading (Part 1)
Today i have come with a new blog,this is about margin Trading. This is the 1st part of margin Trading, i will write another part, which will be part 2 and last. Hope you all will understand.
So, let's start.
What is Margin Trading?
Margin trading is a type of trading in which the funds are provided by a
third party. Traders actually don't own the amount they are trading.
Traders have access to greater capital as compared to simple trading
accounts, allow users to use leverage on the trades.
Margin trading is popular in International Forex (Foreign Exchange)
market but also used in stock, commodity and cryptocurrency market.
In Forex and Stock markets the funds are provided by an investment
broker. However, in the cryptocurrency market, the funds are provided by
other crypto traders who can earn interest on margin leasing. Also, some
popular exchanges provide funds to users.
How Margin Trading Works?
Whenever a margin traded is initiated the trader need to lock a certain
amount of the total order known as margin. The order value and initial
investment (Margin) is based on the leverage taken.
For example: If a trader opens a $1,000 order at a leverage of 10:1 then the
initial investment (Margin) needed is $100. In Simple words, we can say
that the trader has only $100 but because of leverage trading, he can trade
with $1,000 and maximize the profits with small investments.
What is Leverage?
Different exchanges and market offer different rules for margin and
leverage trading. The leverage ratio in the stock market is 2:1, while future
contracts can be traded with 15:1 leverage. The range will be higher for the
Forex market typically trades with 50:1 and go to 500:1.
The cryptocurrency market offer leverage ranges from 2:1 to 100:1 and
crypto traders denote the leverage ratio in "X" for example 2x, 5x,10x and
Traders can use margin trading for both long and short positions. A long
position means that the price will go up (assumption) and a short position
means the price will go down. Traders need to keep in mind that the funds
they are trading with are not their (borrowed), so traders can be forced to
close the trades in loss (only if the brokerage wants that).
Many cryptocurrency exchanges provide funds for margin trading and
users have full control over the trades when to close and when to hold.
Bitcoin Margin Trading:
Margin trading is always risky and when it comes to cryptocurrency
market the risk increases. Bitcoin and cryptocurrency market are highly
volatile and that catches the eye of swing/scalp traders.
Crypto VIP Signal team did not recommend Bitcoin margin trading for
beginners. Traders need a lot of skills and efforts to analyse the market and
open a long/short position. The entry and exit points should be calculated
before taking any trade.
Thanks for reading my blog. I will write again.
Till then bye.