What Are The Risks Involved With Margin Trading And How to Trade With Leverage Properly?

The trend of leveraged crypto margin trading has set new heights consistently in the year 2021. Through April, the prices of cryptocurrencies were higher which meant huge profits for the traders. But soon the prices dropped back down again, it was a completely different story.

Leveraging money is inherently risky, no matter how the market appears to be trending, or how talented you are. So, it's important for you to understand all about margin trading and what are the risks involved with it.

What is margin trading?

Margin trading is all about trading on the borrowed or leveraged money. In order to get a loan, you need the margin or collateral first. It is like a deposit which is controlled by your exchange until you repay the loan amount. Then as per the rules of crypto exchange, you can borrow some multiples of the amount of capital that you've locked in. it is the ratio of what you have put in versus what you take out is known as leverage.

To open leveraged trading on the traditional market, the traders have to interact with the brokers. In the cryptocurrency field, things like margin trading are quite easier. Anyone can take advantage of the centralized or decentralized platforms lending leverage, and make the process simpler. With leverage trading, potential profits are much higher and at the same time, there are chances that potential losses are also much greater.

How does margin trading work?

Leverage trading for Bitcoin or any other cryptocurrency essentially lets the traders amplify their potential profits by giving them leverage between 5x up to 100x the amount required. BitMEX is one of the best platforms that offer trading with leverage to traders for different cryptocurrencies.

Margin trading positions are divided into two different categories where one is long and the other one is short. For a long trade, the trader buys an asset at a low price with the hope of selling it at a higher price. And, on the other side, the short position is exactly the opposite of this. A trader buys an asset and sells it in hope to buy it back at a lower price.

In both of these cases, the trader earns profit from the difference in the price of the crypto asset at the moment of opening or closing any position.

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