What is crypto margin trading?
Margin trading means opening a position that is larger than the balance of your account. By “borrowing” capital from the exchange, you can increase your buying power and open a position with a small investment without paying the full amount of what is needed.
Margin trading is also referred to as leverage trading. “Leverage” refers to the ratio between the position value and the investment needed. For example, margin traders that open positions on Bexplus with 100x leverage will multiply their exposure and potential profit by 100 times.
Trading with 100x leverage will amplify your profits as well as potential risks. Fortunately, the increase in risk in crypto margin trading is not proportionate to leverage. Simply put, your maximum loss will only be limited to your account balance.
How does margin trading work?
A trader needs to invest a deposit to open a position, called “initial margin”, and hold a specific amount of fund in the account to maintain the position, called “ maintenance margin”.
Bexplus offers 100x leverage, the same as 100:1 leverage, which allows traders to open a position 100 times the value of their initial deposit. For example, assuming that you open a position using 0.01 BTC (worth$200) with 100x leverage, then your position is now worth 1 BTC (equal to $2,0000).
Going “long” vs. “short”
Margin trading can be used to open both long and short positions.
Long positions mean that traders predict the price of the cryptocurrency will increase, and then they open long/up positions to seek profits. A short position is an opposite. Traders believe that the price will decrease so they open short/down positions to seek profits from the falling price.
What is a margin call & forced liquidation?
A margin call occurs when the value of the trader’s margin account is less than the account’s maintenance margin requirement. A trader will need to deposit funds or close some positions to meet the margin call. If the trader fails to cover the margin call, the first position will be liquidated by the exchange so as to the subsequent positions until the margin level is higher than requested.
For example, if you lose 70% of your account value, you need to make a margin call, otherwise, your positions will be closed automatically by the system in the order they are opened. This process is called forced liquidation due to the failure of a margin call.
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