There are several ways of trading cryptocurrency. If you have been around the crypto world for a while, you’ve probably heard of “shorting”, “trading with leverage” or “crypto margin trading“. All these terms denote the same method of trading—leverage trading—but are often used interchangeably, making it a bit confusing to new traders.
In a nutshell, margin trading entails using borrowed funds to increase your final returns by betting on the price of assets to go up or down. Considering the risk involved in trading cryptos, most traders choose not to put their funds in exchanges. Besides, some traders may not have adequate funds to put into actual trading. In such cases, they use margin trading as additional capital—some sort of leverage.
While margin trading is very popular, thanks to its high reward potential, it can also be a high-risk trading option. However, there are ways that such risks can be mitigated.
Having Trades Open For A Short Period
Since margin trades incur interests, you can envisage the timeframe of each trade and then set a timeframe limit. This allows you to figure out whether or not things are going off target or if price action is unfolding the way you expected.
Using Stop Losses
When using high margins, you can set trades to target certain prices to sell with a maximum allowable loss amount. This will ensure that no matter what happens with crypto prices, you will only lose a certain amount of funds.
Trading on Reputable Platforms
There are several crypto margin trading platforms with terrible reputations after having been involved in uncountable scandals. Some platforms are even rumored to trade against their clients as well as leak clients’ personal information to hackers. By choosing a reputable platform, you can protect yourself against a wide range of risks, including those that are less expected: the platform itself.
Like other types of crypto trading, you can make a lot of profit or lose a big chunk of your investment with margin trading. So, before you try this trading technique, it is recommended to understand all the risks involved as well as potential mitigation measures. Hopefully, the above-highlighted measures will start you off in your margin trading journey. Besides, reading every crypto trading platform’s terms and conditions can make a huge difference. On the whole, margin trading is a great way to make profits even on price reductions, especially by using short positions.
