Cryptocurrency Exchange Margin Trading – How Does it Work?


Cryptocurrency Exchange Margin TradingIn recent years, virtual crypto coins are the hot talk of the town. Because of the adoption and usage of cryptocurrencies increased in the marketplace. So most of the people started to show their interest in trading digital currencies in crypto training platforms. One of the best ways to earn profits in the crypto exchange is by trading with leverage. This trading process is known as margin trading. Recent reports state that the crypto market is expected to reach 1.40 billion by the year 2024. 

With these recent trends, many crypto exchange platforms are emerging daily. To make your crypto exchange stand out from the crowd. Then it is important to have an outstanding feature to attract more number of crypto traders. One such outstanding feature in the marketplace is Margin Trading.  

In this blog, let us look at what is Margin Trading and its usage in popular cryptocurrency exchanges. Also, the working of margin trading in crypto exchanges.

What is Margin Trading in Crypto Exchange?

Margin trading is a method where a third party will provide funds to perform the trading process. It is also one of the essential features in the crypto exchange platforms. Margin trading can quickly gain more new crypto traders to the exchange. When it comes to margin trading you will definitely cross some massive terms. such as leverage, liquidation price, margin calls, shorting, and other required terms.

When compared to traditional trading accounts. Margin trading accounts allow traders to borrow capital to get increased buying power. Also, open positions far larger than their real account balance. In the Crypto exchange, margin trading allows users to gain greater exposure by borrowing funds from other users on an exchange. Else, they can get it from the exchange itself. Also, it allows users to multiply the amount of capital to perform trading. 

Margin trading in crypto exchange is also known as leverage trading. Leverage is the amount by which a crypto user can multiply their position. Margin trading is a popular feature in slower-moving and low-volatility markets. This feature is still used in stocks, commodities, and cryptocurrency markets. Moreover, in trading accounts, borrowed funds are generally provided by the investment broker. In crypto markets, funds are provided by other users. So they will earn interest based on the demand for margin funds.

Now, let us see…

How does a Margin Trading in Cryptocurrency Exchange work?

If users need to perform Margin Trading, then they need to pay some percentage of the total order. The first investment provided by the user is known as the margin. So this is closely related to the concept of leverage. Margin trading is also used to create leverage trading. Here leverage describes the ratio of borrowed funds to the margin. For instance, if you want to open a trade for $1000 at a leverage of 10:1. Then you need to pay $100 of their capital. 

Normally, trading platforms and markets provide a distinct set of rules and leverage rates. In the stock market, for instance, 2:1 is a typical ratio. here futures contracts are often traded at a 15:1 leverage. In Forex, margin trades are frequently leveraged at a 50:1 ratio. In some cases, 100:1 and 200:1 are also used. When it comes to crypto markets, the ratios are typically ranging from 2:1 to 100:1. Also, the trading community often uses the term X. such as 2x, 5x, 10x, 50x, and more. 

In crypto exchange, users have to create a margin trading account. Also, they need to deposit an initial amount with the exchange. Then they can start trading by deciding the ratio. If the user chooses to open the trade with 100x leverage. Then it means that they can multiply the profits by 100 times. Also at the same time, the user can have high risk. Because the crypto markets are highly volatile. But it does not mean that losses will also be multiplied.

The risk with margin trading will not be equal to the profit ratio. So the loss will not be multiplied like profits. So many crypto traders prefer to get into margin trading and try their chances. But the margin trading feature is not possible on all cryptocurrency exchange platforms. Because only some Companies develop a crypto exchange with margin trading. So here interested crypto traders can take part in the process.

Process Involved in Crypto Exchange Margin Trading

The crypto exchange involves some set of rules for the margin trading process. But those rules vary from one company to another. The rules are opening trading amounts, leverage ratios, and the initial margin. This feature is mostly used to open both long and short positions. . A long position will say an assumption that the value of the asset will go up. whereas a short position is inverse to the long position. 

Here long position means that the trader is waiting for an increase in the price of a cryptocurrency. Whereas a short position means that the trader anticipates that the price of the cryptocurrency will decrease. A short position is mostly used by traders who are looking to make profits from the crashing prices. Also, the crypto market will not always be in favor of traders. To reduce the risk, crypto exchanges will ask users to provide more collateral to cover losses. This process is probably known as a margin call. If the user position is still insecure. Then the crypto exchange has the right to liquidate the position. This process is done to make sure that the user only has the capital investment in margin trading and does not face any losses.

Now, let us look at…

Top Cryptocurrency Exchanges with Margin Trading

Every exchange does not provide a margin trading feature for its users. But some best crypto exchanges offer the margin trading feature.

S. No Name of the Exchange Leverage  Cryptocurrencies Fees 
1 Binance  3x 17 0.2%
2 Kraken  5x 8 0.01-0.02%
3 BitMEX 100x 8 0.075-0.25%
4 eToro 2x 15 0.75%-2.9%
5 Bithoven  2x 13 0.2%
6  10x 43 0.075%
7 Poloniex  5x 16 0.08-0.2%
8 Bitfinex  3.3x 25 0.1-0.2%

Benefits of Integrating Margin Trading in Cryptocurrency Exchange

  1. It can result in an immense amount of profits. It is due to the high relative value of the trading positions.
  2. Increases the trading flow of the crypto exchange 
  3. It is more useful for diversification. So users can open several positions with a small amount of investment.
  4. Admin can collect fees for each successful trading
  5. Users can easily open positions when they have a margin account.
  6. It is highly beneficial for crypto traders. Because it increases the trading capacity.
  7. Users can earn profits with margin trading even though the price of cryptocurrencies falls down.

Considering these benefits in mind, many startups started to integrate margin trading in their crypto exchange. 

Closing Words

Cryptocurrency margin trading is beneficial for both the exchange owners and users. Exchange owners have various opportunities to earn an ample amount of profits. The only thing you need to do is, integrate essential features like margin trading in your crypto exchange. You can also enable high-end security features as per your customizations. 

If you are the person looking to start a crypto exchange with margin trading. Then Zab Technologies – a cryptocurrency exchange development company is here to assist you with the expert team of developers. We excel in delivering the cryptocurrency exchange with margin trading. You can also customize desired features according to your business we provide a feature-rich crypto exchange platform with margin trading at an affordable price.

Request a quote, talk to our experts, and build a Crypto exchange with margin trading now!

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