Bitcoin trading may seem to be a relatively new activity that has been around for less than a decade, but it has grown to become a very complex process that can result in a huge profit if you play your cards right. One of the types of trading that many believe has the biggest potential is margin trading, and many online crypto exchanges offer it. However, how to be sure that your margin trading will be profitable?
The truth about margin trading
Before we proceed to talk about choosing the best cryptocurrency for margin trading, you need to take one thing into account – there’s no guarantee that it will be profitable.
Margin trading, just like every other type of both crypto and non-crypto trading, involves the element of luck that can sometimes be essential and determine your success or failure as a trader. Of course, your job is to find out as much as possible about the best way of trading and minimize the luck factor, but you can never actually exclude it completely.
Now that we have that out of the way, let’s see what margin trading actually is and how to choose the best exchange for that.
What is margin trading?
Essentially, margin trading seems to be more like loaning money to make bigger trades. For example, if you are a trader and you think that the BTC price will go up in the future, you can use margin trading and invest more money into this cryptocurrency, hoping that it will indeed go up.
Margin trading is a double-edged sword. If you made a correct guess and the price of the crypto you invested in really increases, you would have additional benefits from that. On the other hand, there’s always a possibility for the price to go down. In that case, you will have to adopt a different approach and improve your trading strategy.
Which exchanges support margin trading?
Being one of the most popular ways to trade cryptocurrencies, margin trading has become adopted by the majority of popular online exchanges. Although there’s little difference between exchanges when it comes to the sole concept of margin trading, platforms usually differ in terms of trading pairs they offer, the amount of money they’re willing to borrow and more. Finally, the complexity level of margin trading is different and is usually related to the complexity of the platform. Let’s explore these things a bit further. Read on!
If you’re new to crypto trading, you should definitely choose a beginner-friendly platform. CEX.IO is an online cryptocurrency exchange that is widely regarded as welcoming towards new crypto traders. Apart from offering a simple and intuitive interface, its margin trading process is relatively simple to understand and master.
Before joining a platform, make sure to check out what trading pairs are supported by margin trading. You might want to buy a cryptocurrency that is not even supported by the platform you joined. The best way to check this is to go to the page dedicated to margin trading on the platform of your choice even before you join. You will be able to find out more about the software it uses and the cryptocurrency (and fiat currency) pairs that are supported by the platform.
Amount of money
The amount of money you can use as leverage in margin trading may differ depending on the type of account you hold on that platform. For example, new users are often limited when it comes to the amount of money they can deposit, withdraw and trade in any way. Once they verify their accounts, they can increase those limits. Every platform has its limits, and it’s up to you to check them and see whether they’re a good fit for your budget.
The overall strategy you should adopt is to start small and see where you go from there. If you need to increase your limits, you can verify your identity, add card details and you will be rewarded with higher limits. If you want to increase the limits even further, you might want to consider changing to business or other types of “advanced” accounts on the platform of your choice.
Long & short
Finally, margin traders can either “go long” and “go short.” These are basically only two types of margin trading, and the majority of online platforms that offer crypto exchange and trading services should provide both options.
The long positions are opened by traders who believe that the price of the crypto they want to buy would go up. The goal is to use the leverage provided by the platform in order to benefit from the price going up.
The short position is based on the assumption that the price of a cryptocurrency would go down. The goal is to buy crypto once its price drops and profit from the spread.
Conclusion: Trade carefully
Margin trading is not a 100% profitable type of crypto trading. However, if you’re certain enough that the price of crypto is about to go up or down, you can use this feature in order to increase your gains.
The goal is to settle for a crypto exchange that will allow you to have the best possible margin trading experience by meeting your needs in terms of limits, complexity, and more. On the other hand, no exchange can guarantee that you are going to profit from your actions. In the end, it’s up to you and your choices that will bring you success or failure. If you want to start margin trading, you need to accept the fact that there’s always a chance to fail, and that the losses are magnified in that case, just like gains are when you succeed.
Therefore once you choose an exchange, make sure to follow the news about the crypto industry, study various graphs, and, most importantly, become an active member of the community of crypto traders in order to find out more about trading opportunities.