Key Takeaways:
- in margin trading, your account is outspread with funds to increase its trading value.
- When you trade on margin, each dollar in your account is worth more than it is at face value.
- This method enables you to achieve high profits, but on the other hand, you will also be exposed to large losses.
- Margin trading is always recommended for those with experience in the field of trading and who are able to manage their risks.
In the following, we will answer common questions on the minds of those who want to start trading on margin.
1. Can I trade Crypto on margin?
- Margin trading permit to you buy and sell cryptocurrencies
- Margin trading supports a wide range of cryptocurrencies such as BTC, ETH, ADA, USDT, and more.
- every exchange can listing a few or a large number of currencies.
- also every exchange can open a different levels leverage.
2. Which coin is best for margin trading?
- there’s no different at coins in any trading methods and another, for example : If you trading spot, margin or future you will analysis the currency (whatever you use to analyze it), if you think the currency is going up or either down, you will then decide to trade margin Long Or Short.
- At present, Du Crypto Allow trading on margin for 6 cryptocurrencies out of the most famous currencies in the crypto market. Look blow at the fee, as well as the leverage schedule for all the currencies:
COINS LEVERAGE MAKER FEE TAKER FEE Bitcoin 5x 0.002% 0.002% Ethereum 5x 0.002% 0.002% DOT 3x 0.001% 0.0014% UNI 3x 0.001% 0.0014% FILCOIN 3x 0.001% 0.0014% LTC 3x 0.001% 0.0014% BCH 3x 0.001% 0.0014% TRX 3x 0.002% 0.002% EOS 3x 0.002% 0.002% DOGE 3x 0.001% 0.0014% XRP 3x 0.001% 0.0014% BNB 3x 0.001% 0.0014% LINK 3x 0.001% 0.0014%
note : always remember to do your own research and management risks.
3. What is the safest leverage in crypto?
As a main rule, leverage and trading timeframe should be opposite when margin trading. For example, a scalper using 1-min to 5-min charts may choose to use 10x or 25x leverage, while a swing trader may select a more mild 2x or 3x leverage.
This converse relationship is inverse because it usually produce the better risk-to-reward ratio for both scalpers and swings traders.
What the difference between scalping and swinging Traders ?
Scalpers use high leverage, short-term timeframes:
Scalpers are traders who mostly trade with 1-min to 5-min charts. They looking for entries and exits by finding high volatility in the instant short term, and enrich on small sub-1% movements with high leverage.
For example, a trader with 1000 USD in capital and 30x leverage can control a 30,000 USD position. A 1% price move could then generate a profit of 300 USD, which would equate to a 30% gain for the spot trader.
Increasing leverage reduces the price gap between entry price and liquidation price. so, scalpers intent to enter and exit a trade in a very short timeframe to decrease the amount of time in a position and exposure to volatility.
Swing traders use low leverage, long timeframes
Consider the same trade with 3x leverage. Instead of a 300 USD profit, a 3x leverage would only generate 30 USD in profit with a 1% move, not worth it for scalpers.
Example : it’s fully common for Bitcoin to wick between 0.15 and 0.5% on a 1-min chart. The scalper important to keep this in mind and guarantee position size and leverage to prevent forced liquidation from this common market movement.
Be aware that each asset has a unique individuality when it comes to volatility. For example, Bitcoin’s normal volatility range is completely different from Ethereum or Cardano. So, it’s basic thing to do some research and understand the “behavior” of an asset before trading.
Swing traders resort to take a fancy to towards 4h and 1D timeframes. These individuals choose to trade mid to long term trends with lowest leverage or no leverage. A swing trader with 1000 USD in capital and 3x leverage can control a 3,000 USD position.
A 10% price move could then generate a profit of 300 USD, which would equate to a 30% gain for the trader. Swing traders may stay in a position for days or weeks at a time. So, it’s paramount to maintain a low leverage in order to obviate accidental liquidation from normal market liquidity.
It’s normal for crypto markets to swing 5-10% on a daily timeframe. If you’re a swing trader, you do not want to be held in a situation where your liquidation price is within a few points away of your entry point. trading on leverage has an linked funding cost in the form of a daily interest rate, which can add up very fast.
4. What happens when you lose a leverage trade?
Now you already know what is leverage & how its work.
you may ask now, what will happen if ” I lose a leverage trade ”
Losing a trade in crypto market is just like losing a trade in any other financial market. The amount lost depends on the size of the trade and the price of the leverage liquidation that closes against you. Before giving an example, let first get some nomenclature out the way.
What is liquidation price ?
the term liquidation is used to dub the forced closing of a trader’s position due to the fractional or total loss of the trader’s former margin. This happens when they cannot assembly the margin requirements for their leveraged position. Example, they have scanty funds to keep the trade open. Margin requirements are often underfunded when there’s a surprising drop in the implicit asset’s price.
When this happens, the platform will automatically force close the position, resulting in a loss of funds for the trader. The seriousness of this loss will depend on the first margin in place and how much the price drops. In some cases, it can lead to a total funding loss.
Liquidations can be classified into fractional and overall liquidation. For example:
Partial liquidation: Liquidation that closes a position partly early on to minify the position and leverage used by a trader.
Total liquidation: shutting a position nearly all of the premier margin of a trader has been used.
Liquidation can happen in margin, futures and spot trading. therewith traders should be conscious that when open an position, the price is derived from the asset instead of the asset itself. That translates to the inconstancy of the profit and loss when it’s converted back to the current asset’s price.
How Does Liquidation Happen?
Liquidation happens when an platform closes out a trader’s position because it can no longer meet margin requirements. Margin is the point of the total trade value that must be deposited with the exchange to open and maintain a position.
When a trader’s margin account falls beneath a level once upon a time agreed upon with the exchange, positions will automatically start liquidating. When your leveraged position reaches the liquidation sill, you’ll face a “margin call,” which means you need to place up more margin. Liquidation face to happen more often on futures contracts, where traders use higher amounts of leverage.
At that stage, there are two options: Either you can add funds to your margin wallet to bring your leverage back up above the leverage requirement, or the platform will automatically liquidate your position.
Continuing with our example of a $500 first margin, let’s say you entered a trade with 3x leverage, which means your leveraged position is now $1,500 — that is, $500 of your own money and $1,000 which you’ve borrowed from the exchange.
Let’s say your BTC slipped by 15%. Your position now is worth $1,275. have to the dip continue, and the position’s losses raise, it would be used to the borrowed funds. To evade losses to the borrowed funds, the platform would then liquidate your position to protect the money lend to you. Your position is closed. and your premier funds of $225 is lost.
That’s not all. Platforms will typically cost you a liquidation fee. The idea is to spur traders to close their positions before they’re liquidated automatically.
5. What leverage should a beginner use?
Let’s find out what is the best leverage a beginner can start with. Many new traders are attracted to high leverage & learning strategy as they want to make more money in a short period of time.
However, keep in mind that leverage is linked with definite risks.
Benefits of leverage use:
at the start, let’s take a look at the benefits of leverage for a fresh trader:
1. Chance of making superb profits
while Using leverage its gives traders way to increase their foremost investment in order to do bigger trade.
Best leverage ratio example:
For example, a trader who has only 1,000$ on their wallet can actually trade with 50,000 $ with a leverage of 50x or 100,000 $ using a leverage of 100x. purely, this trader is risking of losing 1,000 $ of his own funds, but if he had successful, will earn a profit of $100,000 if the position was opened at 100% margin and the leverage 100x.
2. Improving funds performance
For example, if your wallet has $500 and you use a leverage of 100x you will in fact have 50,000$ to administer. This means you have the chance to open more positions in different trading tools and apply inclose techniques for more defense against risks. This allows diversification in your portfolio, decrease risks, and raise the chances of making a earning.
3. proper financial conditions
in the past, when exchanges provided no leverage, the only opportunity to trade with leverage was borrowing a very limited amount of funds from the platform at high-interest rates, huge collaterals and guarantee.
In emulation of intense competition, exchanges provide large leverage to entice clients with a very small amount of the deposit and with lower commissions. If you trade in the day, using leverage will be almost free. If you decide to carry the trade overnight, it’s the exchange’s commission.
The deposit growth of the high-risk can easily reach up to 200-400% profitability per month, which is much higher than in any bank.
4. Security
You’ve maybe heard about Margin Call. Many traders are scared of these words. But in fact, this function is created to protect your funds. Regrettably, it often happens that new traders misjudge their risks. When it becomes obvious to the exchange that the chance of you losing your funds is high, they call or send you an auto-message about the need to supplement your balance to cover high risks.
Sometimes remiss traders forget about leverage and the obligations connected with it. As a result of paradoxical trading, they can turn into the debtors of the company. To avoid this, use the services of exchange that ataraxy zero balance in case of liquidation of trade. Thanks to this function, you will never lose more than what you have on your wallet.
Disadvantages of leverage
However, there is a blackish side to leverage. novelty traders should pay attention to the Negatives of leverage.
To separate them:
1. High risk of losing your funds
A trader falls into psychological trap for this risk while using a high leverage.you feel like you have a lot of money that you need to invest in something. It is very remarkable for every new trader to remember that leverage not only gives further opportunities but also creates obligations. The most paramount one is to cover losses at the cost of your own money in order to Stop Out .
Since you can multiply your funds by hundreds of times, it can also make huge losses. This status is mostly dangerous when sundry large positions are open at once. If you get losses in one trade, your account level decreases for all other open positions and the risk of Stop in these trades increases. In other words, if you disadvantage a free margin, your large framework of positions can collapse in a moment and burn up your funds.
2. It is very difficult to get the funds back
As above-mentioned, it is very easy to afford a major loss on your wallet with a high leverage. New traders believe that since the leverage is high, it is just easy to get the account back to its previous deposit. But you should always remember that to recompense for losses, profitability must be many times larger. For example, if with 200$ on your balance, you get a loss of 50%, to return to a breakeven position, you need to make 100% profit from the balance of 100$.
In the following table, you will find the percentages you need to compensate for losses. I recommend placing it in front of the screen as a reminder to follow risk management rules.
| % loss
from the starting funds |
% profit to coverage losses |
| 10% | 11.11% |
| 20% | 25.00% |
| 30% | 42.85% |
| 40% | 66.66% |
| 50% | 100.00% |
| 60% | 150.00% |
| 70% | 233.00% |
| 80% | 400.00% |
| 90% | 900.00% |
| 100% | Your deposit is gone |
What is the appropriate leverage level for a beginner?
If you are new to Crypto Market, the start would be to use 2x or 3x leverage. So, the best leverage for a beginner overall is not likely higher than the ratio from 1x To 10X .
So what leverage is the safest?
In the following table calculation of the Necessary guarantees and funds change for leverages with a lot of classics.
| Leverage | Change in currency pairs, % | Position size in lots | Margin, USD | Balance change,
% |
| 100x | 1% | 1 | 1000 | 100% |
| 50x | 1% | 1 | 2000 | 50% |
| 33x | 1% | 1 | 3000 | 33% |
| 20x | 1% | 1 | 5000 | 20% |
| 10x | 1% | 1 | 10000 | 10% |
| 5x | 1% | 1 | 20000 | 5% |
| 3x | 1% | 1 | 30000 | 3% |
| 1x | 1% | 1 | 50000 | 1% |
assume that we are want to start trading with a fund of 500$, with an fair risk per position of 1% to the balance and an acceptable position drawdown of 1% with maximum portfolio variegation.
| Leverage | Position drawdown, % | Maximum number of positions | Balance, $ | Risk for funds per position, % |
| 100x | 1% | 100 | 500 | 0.01% |
| 50x | 1% | 50 | 500 | 0.02% |
| 33x | 1% | 33 | 500 | 0.03% |
| 20x | 1% | 20 | 500 | 0.05% |
| 10x | 1% | 10 | 500 | 0.10% |
| 5x | 1% | 5 | 500 | 0.20% |
| 3x | 1% | 3 | 500 | 0.33% |
| 1x | 1% | 1 | 500 | 1.00% |
Final Word:
what’s left for beginners who are advised to use a 3x leverage but don’t have 500$ and want to trade successfully, making money now?
- determine your trading style. are you going to scalping all day with lowest timeframes, or you will set a mid term position, do you will trade future, margin or even spot?. the larger the horizon of trades, the higher size of the funds is needed.
- you need to study theory’s and the stricture of the market in which you are going to trade. You definitely need to basic technical analysis. Understand the details of the market, news, market stats, indicators and other factors that can impact the price of your favorite tool.
- Only trade with the money you can risk. Following this rule, you will relax yourself of dispensable stress and trade with calm confidence.
- don’t hesitate to ask for advice from more experienced Traders. It’s okay to ask questions, but it’s important to ask right.
- If you see you cannot spend enough time for trading but you want to invest, the solution can be in copy trading, where you copy other experienced traders (check this out here). do not trust the whole deposit to one trader. Share risks between various traders.
- Do not use the all margin for single trade. Better to have 50 or 100 different positions with a minimum lot of 0.01 than one trade with a lot size of 1.
- keep in your mind to use stop loss. Do not let the loss on one position to overtake 2% of your fund.
- Don’t stop learn about your risk management. set the maximum admissible risk for the amount of open positions. Monitor the risks for each position. Keep track of the wallet level. .
- Don’t open a position without a predetermined trading plan. Identify the entry-level, take profit and stop loss, the signal for rising the position and the signal for exiting the market.
- Keep a trading source! Write down trade parameters, support and resistance signals, even the emotional state when entering and exiting the market. Keeping a learning source will make trading more mindful and provide a basis for reflection and learning from your own mistakes.
