People might think of stocks when we talk about margin trading, but it is also applicable to cryptocurrencies. Kucoin is an exceptional crypto trading platform, where you can perform margin trading on your cryptocurrencies, all with easy-to-use features and outstanding security, where you can buy currencies such as, BTC, ETH, Shib. So let us get into it.
What Is Margin Trading?
In simple words, margin trading is being able to buy more assets than you can afford. Margin Trading is done via leverage on the collateral stored in the account, and this service is provided by brokers, usually.
You need to set up a Margin Account for trading, in which you will need to deposit a minimum amount to be able to margin trade, and brokers set this minimum amount.
After depositing the amount, you can buy assets twice that of the amount by borrowing from the broker. The assets, in this case, can be cryptocurrencies.
Things To Keep In Mind
Margin trading is very risky and so is not advised to beginners. Experienced traders who are used to taking risks are the ones who mostly use margin trading.
Why Should I Use Margin Trading
While it is not advised to beginners, veteran traders can use margin trading. Several attractive features might compel you to use margin trading. We have listed them as follows:
- Bigger Profits. This one is obvious, without margin trading, if you were making a profit of $600, then with margin trading, you may be able to borrow more, then buy more assets, which in turn can cause bigger profits, for example, $1200 instead of $600, this is an example.
- No Fixed Repayment Dates. Other loans have fixed repayment dates, such as a year, a month, and so on; however, margin loans do not and only need to be repaid when you sell the assets you bought using the loan.
- Buying Power. Another benefit of margin trading is that you can buy more assets than you would be able to in other circumstances. For example, if you have $600, then by using a margin account, you can buy assets up to $1200; the other $600 comes from the broker as a loan pklikes.com.
Risks Associated With Margin Trading
Now let us talk about why this is not advised to beginners:
- Bigger Losses. Just like bigger profits, losses are enhanced; if you own $500 in your account, assets worth $1000, and a loss of $100 occurs, your asset would have lost 10% of the value, but you would have lost 20% of your equity, as losses are deducted from your owned portion, not the loan.
- Margin Calls. A broker can use this if your assets lose too much value, and you will have to deposit money into the account to reach minimum account balance requirements.
Kucoin allows the user to perform margin trading on cryptocurrencies with its enhanced features and security, but it is a risky endeavor and is only advised to experienced traders.