What is margin trading?

Main

• Margin trading is trading on the spot market using borrowed funds. The trader takes them on the security of his own assets – margin (margin). For the use of credit funds, he pays a commission at an interest rate every hour.
• With the help of margin trading, users increase their purchasing power and potential profit from price increases, as well as earn from a fall in the rate of cryptocurrencies.
• Margin guarantees that the client will fulfill debt obligations in accordance with the rules of the exchange, which acts as an intermediary between borrowers and lenders.

What is leverage?

Leverage, or leverage, is the ratio of borrowed funds to margin. In the cryptocurrency market, leverage ranges from 2x to 100x.

Trading with 10x leverage means that with a deposit of 1,000 USDT, a trader can borrow 9,000 USDT from a broker and open a trade for up to 10,000 USDT.

What is a margin call and position liquidation?

Margin call and liquidation or forced liquidation are exchange defense mechanisms to prevent traders from becoming indebted and creditors incurring losses.

A margin call is a request by a broker to deposit additional margin into an account in order to make up for collateral for open positions. It occurs when the trader’s margin level enters the risk zone, which is calculated for each pair depending on market depth and trading volume.

Liquidation is the forced closure of a position in which the amount of loss is almost equal to the margin deposited.

At the moment of touching the risk zone, the trader receives a pop-up notification or an email with a recommendation to deposit additional funds. If he ignores the message and the price goes lower, the exchange will liquidate the position.

A trader can close a trade without waiting for liquidation – manually or using stop loss. Then he will lose only part of the margin.

What is cross margin and isolated margin?

Cross margin and isolated margin are margin usage types. In the first case, all the trader’s funds are used to secure open positions, and in the second, he allocates a certain amount to secure each transaction.

When using cross margin, profit from one trade can cover losses on others. At the same time, one losing trade can cause the liquidation of all open positions.

When using isolated margin, the liquidation of a particular trade does not affect other positions.

What is an index price in margin trading?

The index price is the weighted average price of an asset based on data from several markets. Crypto exchanges use it to minimize price manipulation.

For example, Binance calculates price indexes for financial instruments based on Huobi, OKX, Bittrex, HitBTC, Gate.io, BitMEX, MXC, Bitfinex, Coinbase, Bitstamp, Kraken, Binance.US, and Bybit.

In turn, CoinEx calculates these values ​​based on data from Binance, Huobi Global, KuCoin, and Gate.io.

When the index price goes beyond a certain range during periods of high volatility, the crypto exchange warns users of the high risk of liquidation of positions.

If one of the venues is undergoing maintenance and/or its last execution price and volume update is not working, CoinEx temporarily excludes it from the calculations and equalizes the weights.

When placing a stop loss, you can choose the index price as a trigger. This will avoid losses due to local market fluctuations on the trading floor.

How to make money on long margin trading?

Long (long), or a long position, is the purchase of an asset in anticipation of growth. Leverage can be used to increase the potential profit from the subsequent sale of a financial instrument.

Example: the trader expects the price of bitcoin to rise from 15,000 USDT to 25,000 USDT.

He deposits 3,000 USDT to his margin account and borrows 12,000 USDT on CoinEx to trade with 5x leverage. The interest rate on the loan is 0.15% per day.

A trader buys Bitcoin for 15,000 USDT and sells coins 10 days later when the price of the asset rises to 25,000 USDT.

The net profit from the operation will be:

profit from the sale of 1 BTC (25,000 USDT) – debt to the exchange (12,000 USDT) – fee to the broker for the use of loan funds (180 USDT) – initial capital of the trader (3000 USDT) = 9820USDT.

The profit from a similar trade without leverage would be:

How to make money on margin trading short?

Short (short), or a short position, is the sale of an asset for the purpose of subsequent repurchase at a lower price. You can make money on falling prices only with the help of margin trading.

Example: the trader expects the price of bitcoin to drop from 25,000 USDT to 15,000 USDT.

He buys 0.2 BTC at the current price and borrows 0.8 BTC on CoinEx to trade with 5x leverage. The interest rate on the loan is 0.1% per day.

A trader sells 1 BTC and receives 25,000 USDT. After 10 days, the price of the cryptocurrency drops to 15,000 USDT and he buys 0.8 BTC to pay off his debt.

The net profit from the operation will be:

How to start trading with leverage?

The first step is to choose an exchange that supports margin trading. These platforms include Binance, Coinbase Pro, Huobi, Bitfinex, Kraken, CoinEx, and others.

You can only trade on isolated margin on CoinEx. For this you need:

1. Register and activate your account.
2. Make a deposit.
3. Decide on a pair for margin trading and transfer assets to the appropriate account.
4. Choose the direction of trade – long or short.
5. Wait for the entry point and borrow funds.
6. Trade the selected asset.
7. Reimburse the debt to the broker.

What is a margin reserve fund?

The margin reserve fund is the funds that the exchange uses to cover the losses of clients when trading on margin.

Yes, CoinEx deducts liquidation commissions to the fund and 30% of income from crypto lending. If the trader’s balance goes negative after liquidating the position, CoinEx uses the fund to pay off the debt.

In the event of a shortage of funds in the fund’s reserves at the current moment, CoinEx pays the rest of the debt ahead of schedule. However, the user will not be able to withdraw funds from the main account.

To pay off the balance of a debt obligation, a trader must deposit funds into a margin account or wait until the fund has enough funds to pay off all debts in chronological order. After paying off the debt, the exchange restores the withdrawal function.

Benefits of leveraged trading

When using leverage, you can:

• trade several assets on different markets by increasing capital in circulation;
• achieve financial goals faster than with similar trading on the spot market without leverage;
• receive unlimited potential profit – the crypto exchange does not start the procedure auto-deleveraginglike in the futures market.

Risks of trading with leverage

• When trading with leverage, losses can be 100% or more of the deposit.
• The strategy is especially risky during periods of high market volatility.
• Technical issues on the trading platform can lead to delays in order execution and loss of funds.

Main

• Margin trading is trading on the spot market using borrowed funds. The trader takes them on the security of his own assets – margin (margin). For the use of credit funds, he pays a commission at an interest rate every hour.
• With the help of margin trading, users increase their purchasing power and potential profit from price increases, as well as earn from a fall in the rate of cryptocurrencies.
• Margin guarantees that the client will fulfill debt obligations in accordance with the rules of the exchange, which acts as an intermediary between borrowers and lenders.

What is leverage?

Leverage, or leverage, is the ratio of borrowed funds to margin. In the cryptocurrency market, leverage ranges from 2x to 100x.

Trading with 10x leverage means that with a deposit of 1,000 USDT, a trader can borrow 9,000 USDT from a broker and open a trade for up to 10,000 USDT.

What is a margin call and position liquidation?

Margin call and liquidation or forced liquidation are exchange defense mechanisms to prevent traders from becoming indebted and creditors incurring losses.

A margin call is a request by a broker to deposit additional margin into an account in order to make up for collateral for open positions. It occurs when the trader’s margin level enters the risk zone, which is calculated for each pair depending on market depth and trading volume.

Liquidation is the forced closure of a position in which the amount of loss is almost equal to the margin deposited.

At the moment of touching the risk zone, the trader receives a pop-up notification or an email with a recommendation to deposit additional funds. If he ignores the message and the price goes lower, the exchange will liquidate the position.

A trader can close a trade without waiting for liquidation – manually or using stop loss. Then he will lose only part of the margin.

What is cross margin and isolated margin?

Cross margin and isolated margin are margin usage types. In the first case, all the trader’s funds are used to secure open positions, and in the second, he allocates a certain amount to secure each transaction.

When using cross margin, profit from one trade can cover losses on others. At the same time, one losing trade can cause the liquidation of all open positions.

When using isolated margin, the liquidation of a particular trade does not affect other positions.

What is an index price in margin trading?

The index price is the weighted average price of an asset based on data from several markets. Crypto exchanges use it to minimize price manipulation.

For example, Binance calculates price indexes for financial instruments based on Huobi, OKX, Bittrex, HitBTC, Gate.io, BitMEX, MXC, Bitfinex, Coinbase, Bitstamp, Kraken, Binance.US, and Bybit.

In turn, CoinEx calculates these values ​​based on data from Binance, Huobi Global, KuCoin, and Gate.io.

When the index price goes beyond a certain range during periods of high volatility, the crypto exchange warns users of the high risk of liquidation of positions.

If one of the venues is undergoing maintenance and/or its last execution price and volume update is not working, CoinEx temporarily excludes it from the calculations and equalizes the weights.

When placing a stop loss, you can choose the index price as a trigger. This will avoid losses due to local market fluctuations on the trading floor.

How to make money on long margin trading?

Long (long), or a long position, is the purchase of an asset in anticipation of growth. Leverage can be used to increase the potential profit from the subsequent sale of a financial instrument.

Example: the trader expects the price of bitcoin to rise from 15,000 USDT to 25,000 USDT.

He deposits 3,000 USDT to his margin account and borrows 12,000 USDT on CoinEx to trade with 5x leverage. The interest rate on the loan is 0.15% per day.

A trader buys Bitcoin for 15,000 USDT and sells coins 10 days later when the price of the asset rises to 25,000 USDT.

The net profit from the operation will be:

profit from the sale of 1 BTC (25,000 USDT) – debt to the exchange (12,000 USDT) – fee to the broker for the use of loan funds (180 USDT) – initial capital of the trader (3000 USDT) = 9820USDT.

The profit from a similar trade without leverage would be:

How to make money on margin trading short?

Short (short), or a short position, is the sale of an asset for the purpose of subsequent repurchase at a lower price. You can make money on falling prices only with the help of margin trading.

Example: the trader expects the price of bitcoin to drop from 25,000 USDT to 15,000 USDT.

He buys 0.2 BTC at the current price and borrows 0.8 BTC on CoinEx to trade with 5x leverage. The interest rate on the loan is 0.1% per day.

A trader sells 1 BTC and receives 25,000 USDT. After 10 days, the price of the cryptocurrency drops to 15,000 USDT and he buys 0.8 BTC to pay off his debt.

The net profit from the operation will be:

How to start trading with leverage?

The first step is to choose an exchange that supports margin trading. These platforms include Binance, Coinbase Pro, Huobi, Bitfinex, Kraken, CoinEx, and others.

You can only trade on isolated margin on CoinEx. For this you need:

1. Register and activate your account.
2. Make a deposit.
3. Decide on a pair for margin trading and transfer assets to the appropriate account.
4. Choose the direction of trade – long or short.
5. Wait for the entry point and borrow funds.
6. Trade the selected asset.
7. Reimburse the debt to the broker.

What is a margin reserve fund?

The margin reserve fund is the funds that the exchange uses to cover the losses of clients when trading on margin.

Yes, CoinEx deducts liquidation commissions to the fund and 30% of income from crypto lending. If the trader’s balance goes negative after liquidating the position, CoinEx uses the fund to pay off the debt.

In the event of a shortage of funds in the fund’s reserves at the current moment, CoinEx pays the rest of the debt ahead of schedule. However, the user will not be able to withdraw funds from the main account.

To pay off the balance of a debt obligation, a trader must deposit funds into a margin account or wait until the fund has enough funds to pay off all debts in chronological order. After paying off the debt, the exchange restores the withdrawal function.

Benefits of leveraged trading

When using leverage, you can:

• trade several assets on different markets by increasing capital in circulation;
• achieve financial goals faster than with similar trading on the spot market without leverage;
• receive unlimited potential profit – the crypto exchange does not start the procedure auto-deleveraginglike in the futures market.

Risks of trading with leverage

• When trading with leverage, losses can be 100% or more of the deposit.
• The strategy is especially risky during periods of high market volatility.
• Technical issues on the trading platform can lead to delays in order execution and loss of funds.