Margin Trading – a term that we often encounter in Facebook groups or Telegram channels about cryptocurrency, coin trading groups in Vietnam as well as in the world. Many people say that playing Margin Bitcoin is very quick to get rich, but there are also people who think that playing Margin can easily burn the account, leading to heavy losses. Some popular cryptocurrency exchanges allow margin such as BitMex, Poloniex, Bitfinex, .. with leverage up to x3 – x10, a very attractive number but also potentially “dangerous”. This article I Love Bitcoin will help you learn more about Margin Trading. And issues related to Margin Trading Bitcoin.
What is Margin Trading?
Margin Trading translated in Vietnamese as “margin trading”, this is a term that refers to the use of financial leverage in investing. Margin Previously used a lot in the securities sector, and it became more and more popular as cryptocurrency came into existence. The essence of Margin Trading is that you trade with borrowed funds instead of the actual capital you have.
To be Margin trading On a certain exchange, you need to have an amount of money called margin (collateral). Depending on each exchange, they will lend you 3, 5 or 10 times the amount you deposit, or even with BitMex you can borrow 100 times. When making a deposit, you have to pay a daily fee (interest) to the exchange based on the amount you borrowed, this fee also varies from floor to floor. Initial Equity nice Initial Margin is the minimum deposit you have to pay to place an order. For example, the Bitfinex exchange gives you Leverage 3.33x, with an order of 10,000 USD you must deposit at least 3333.33 USD.
1. Example of Margin Trading
A more specific example for you to understand Margin Trading:
A trader “shorts” (Short/Sell) 100BTC in the BTC/USD pair at $8000. In total he sells:
100XBT * 8000 = 800,000 contracts
The next day Bitcoin price dropped to $7500, so that trader’s profit is:
((8000 – 7500) * 100BTC) / 7500 = 6.67 BTC
800,000 * (1/7500 – 1/8000) = 6.67 BTC
Here we can understand that because the trader predicted that the Bitcoin price would continue to fall below 8000, he made a short sale of 100 BTC at $8000 and bought it back at $7500. And this Bitcoin will increase by 6.67 BTC because the price of Bitcoin is cheaper, and that is his profit.
Contrary to the above formula, if Bitcoin price goes up then he has to buy high price and get less Bitcoin, thus he has lost.
2. Example of leverage in Margin Trading
Continuing the above example, the trader started with 100BTC and after short, he got 106.67BTC, which means a profit of 6.67%. However, in terms of USD value, he still broke even because:
8000 x 100BTC = 800,000 USD = 7500 x 106.67BTC
Although he owns more BTC, but due to the decrease in the price of Bitcoin, the amount of money he has remains unchanged. However, if he used x5 leverage on that trade, it would look like this:
Profit in BTC:
800,000 * (1/7500 – 1/8000) * 5 = 33.33 BTC
Profit in USD:
7500 * 133.33 – 800,000 = 200,000 USD
Thus he will have a profit of 33.33% in BTC and when converted to USD he still has a profit of 25% compared to the total initial investment. That’s why to be really profitable on BitMEX, you need to combine leverage, otherwise you just increase the number of Bitcoins you own.
Positions in Margin
When you play Margin on any exchange there will be two position aka “Position“:
- Short Position (Short position): aka position sell. When in a short position, you borrow an amount from the floor Bitcoin or Altcoins (or use the coin you have available on the exchange wallet) and sell it at the current price for USD and expect the price to go down later. when the Bitcoin price down, with the same amount of USD you will buy more Bitcoin, you will take the principal to pay the floor (with a little loan interest) and keep the profit.
- Long Position (Long position): aka position buy. When in a long position, you borrow a certain amount of USD from the floor or use the available USD to buy Bitcoins and wait for BTC to increase in price and then sell it for a profit. This is similar when you buy and sell coins on regular exchanges like Binance nice Huobi Global.
Pros and cons of playing Bitcoin Margin trading
Margin trading is a very good form of trading, bringing great profit opportunities for traders, but it also carries a huge risk of “accounting out” when the market fluctuates strongly. Here are the advantages and disadvantages of margin trading in Bitcoin or other coins that you should know:
1. Advantages of playing Margin
- Increase the amount available to trade: When using leverage, you can increase the amount used to buy Bitcoin and when the price increases, your profit increases many times. Margin Trading is suitable for those of you who have trading experience but have little capital, take advantage of leverage to buy more Bitcoin and quickly profit from small price increases instead of buying less Bitcoin and waiting for price increases. big or small profit from a small rally.
- Save money when the market drops: With the normal way of trading, you can only make money when the market goes up by buying low price selling high price, when the market falls, you have no profit. Trading Margin helps you make money even when the market is downtrend thanks to Short orders, which trading on the basic floor does not have.
2. Disadvantages of playing Margin
Margin Trading It can make you many times more profitable, it can also make you lose many times. The correct assessment of the market makes you very quick to profit from Margin, but when misjudged, careless entry and too large leverage can lead to a blank account.
In addition, in Margin Trading, you are only allowed to lose up to a certain level when opening a position. Although you have not really lost if you have not closed the position, but if the intended loss exceeds the allowable number of losses, your position will be liquidated by the exchange, leaving you a huge loss and only returning you the meager amount remaining. . The early liquidation is what traders call “account fire“.
Basic concepts to know when playing Margin
- Margin Account (Margin account): The amount the floor holds when you open a position. This amount is more or less depending on the leverage you choose.
- Exchange Account: Regular trading account
- Lending Account: An account where you lend money to others. You can earn interest from the money on this account.
- Position (For example/command):
- Long: Buy at low price, expect high price to sell.
- Short: Borrow to sell first, expect the price to drop to buy cheap and pay back.
- Maintenance Balance: % of the play amount, required in order not to liquidate the account. The remaining amount (Capital – Loss) must be greater than this value. Poloniex claims 20%, Bitfinex is 15%. (Place 4, last photo)
- Required Equity: The estimated remaining account value required to not be liquidated, similar to Maintenance Balance, but expressed in USD/BTC instead of %.
- Liquidation/Fire accountCh: When the number of losses exceeds the allowable limit (Or Maintenace < 20% (15% vs Bitfinex) If you are Long, it will sell enough coins you bought earlier at the market price (currently very expensive). low) and return the balance to you.If you are short, it will buy enough coins you borrowed before at the market price (which is very high), then the balance will be returned to your account.
- Magic Call: A notification when your account is about to reach the liquidation threshold, sent to you by email for you to decide: Partial cut loss or armor injection to maintain.
- Base Price: The estimated price for your order, when long, the base price is as low as possible, when short, the base price is as high as possible (buy must be cheap, sell must be expensive to make a profit).
- LIQ Price: Estimate when the price reaches this mark your account will be liquidated.
- P/L: Estimate your profit and loss according to current market orders. P/L % is profit and loss in %.
- P/L fee/Funding Cost: Your loan fee
- Kill Margin / Kill Short / Kill Long: Some exchanges or sharks hold large amounts of coins to be able to manipulate the price, thereby pushing the price up too high in a short time to burn the accounts of those who place Short (Kill Short) orders or pedal. The price drops really low to burn the accounts of those who place Long orders (Kill Long). This action is collectively known as Kill Margin.
When to use Margin?
Firstly, Margin is a trick only for those who have been trading in the market for a while and not usually for beginners. Once you gain experience in trading, you will know some tricks, have market sensitivity and have a good investment strategy.
Margin Trading Usually used in short-term investment (surfing investment) when investors foresee the change of the market and want to seize this opportunity to invest.
The purpose you use Margin is to multiply the foreseeable profit. However, if the market situation does not change as you predict, the risk can also increase many times.
And regardless of the profit or loss on that trade, you also have to pay an additional interest/transaction fee on the loan. Even seasoned investors can suffer heavy losses when making these margin trades. Therefore, only make Margin when you really grasp the direction of the market’s movements.
Some exchanges support playing Margin
Below I will introduce to you some of the most popular virtual currency exchanges that are supporting users in margin trading today:
- BitMEX: It is currently the world’s largest crypto derivatives exchange by trading volume. With the advantage of supporting up to 100x leverage, BitMEX is still the number 1 choice for margin traders. BitMex supports margin for Bitcoin, ETH and some major Altcoins. [Đăng ký tài khoản theo link này để được giảm 10% phí giao dịch].
- Binance: The world’s largest cryptocurrency exchange, margin was also just launched by Binance on July 10, 2019. Binance is also an exchange that is no stranger to global users, currently it is the exchange with the largest spot volume in the world.
- Bitfinex: This exchange is already familiar to investors and traders, it is the oldest Bitcoin margin floor…