What is Margin Trading in crypto?Crypto margin trading doesn’t have to be complicated. The basics of margin trading are relatively straightforward, so we’ll cut through the noise. Put simply: a crypto margin trade allows traders to “borrow” capital in order to access increased buying power and open positions far larger than their “real” account balance.
Margin trading allows you to go long and short positions by 2x, 10x or even 100x (depending on the platform) without having actually holding the capital required to open such positions. You have up to 50x on BBOD which means you potentially can earn fifty times more compared to a regular spot trade.
However, the crypto markets are highly volatile. The price fluctuations exhibited by them make it possible for crypto traders to make profits in both bear and bull markets through Bitcoin margin trading.
Types of Margin TradingIsolated Margin: traders are allowed to hold both long and short positions. The risk is evaluated separately. If get liquidated, the trader will only lose his position margin. This means the maximum loss of the trader is the margin.
Cross Margin: BBOD uses this type of margin. All the available assets will be seen as margin. A trader will be liquidated only when the loss exceeded the account balance . To avoid using all funds as collateral traders can manually isolate a part of their margin by transferring a specific amount of funds to their Spot Balance. This allows them to secure a part of their funds in the event of a liquidation.
Advantage: This mode is of high anti-loss capability. It is convenient to process and to calculate the position, thus it is often used for hedging and quantitative trading.
Understanding Margin Calls and Liquidation. If you open a trade and the market moves against you, it may happen that the exchange will ask for more collateral in order to secure your position or forcibly close the position.
Most exchanges will notify traders via email, but it’s important to actively monitor your margin levels.
Calculating profit and lossSuppose you have 1,000 TUSD in the margin account (this is your equity). You buy (buy) 4 Bitcoin contracts (BTC / TUSD) at a price of 5,000 TUSD for each BTC.
The position is worth 4 * 5,000 = 20,000 TUSD
- 2% of this is 400 USD (this is your starting margin)
- 1.5% of this is 300 USD (this is your maintenance margin)
Leverage is calculated as 20,000 / 1,000 TUSD = 20: 1 or 20x
Now, let's go assume that the price of Bitcoin has increased and the market price BTC / TUSD is currently 6,000 TUSD. The average entry price is 5,000 TUSD. This means that you made an unrealized profit of: Unrealized
profit = (6,000–5,000) * 4 = 4,000 TUSD
The price of BTC / TUSD has increased by 6,000 / 5,000 = 20%, but the return on your initial deposit is 4,000 / 1,000 = 400%.
Sale offContinuing the previous example, your initial equity is 1,000 TUSD. We defined initial equity as your equity at the time you opened the position. When the loss in position is greater than or equal to 1000–300 = 700 TUSD, your equity will decrease and be equal to or less than the maintenance margin (300 TUSD). At this point, all of your positions will be forcibly liquidated by the BBOD risk mechanism.
The settlement mechanism will take over as soon as its position is valued at 10,000–700 = 9,300 TUSD. Assuming that you hold only one position, the settlement price can be calculated as follows:
Settlement price = (Position value - Initial equity + Maintenance margin) / Quantity
In our example, the settlement price is equal to (20,000–1,000 + 300) / 4 = 4,825 TUSD per 1 Bitcoin.
The settlement price may vary due to deposits in the margin account, trading fees and other positions in your margin account.
How to operate at BBOD:
Go to the Market and select your favorite asset.
Specify the order type, quantity and price. Execute the order by clicking on “Buy” (BUY) or “Sell” (SELL).
The margin mentioned just above the sell button means the margin needed to open a position. This is 2% for BTC or ETH contracts. This means that if you want to open a 5000 TUSD position, you can open it using only 100 TUSD. (Leverage of 50x / 2% margin).
Stop Loss places a market order when a certain price condition is met. Therefore, it works as a limit order, as it is accounted for, but it executes as a market order when that price is reached.
If you want to close a long position with the desired price, select “Limit Order”, specify the price and click “Sell” (sell).
Blockchainsettlement Daily settlement is the process of synchronizing balance sheets on the platform with balances on the blockchain. At BBOD, the daily blockchain settlement takes place (at 00:00 UTC) and lasts about 15 minutes. During this period, the blockchain balance is updated according to your balance on the platform.
Cryptocurrency margin trading strategiesMargin trading is a high-risk investment strategy that depends on market movement in the short term. Compared to traditional stock or forex markets, the cryptocurrency market is very volatile.
Here are some tips and strategies on how to be a successful margin trader:
Progressively increase your trading size : As a margin trader, it is best to develop a firm understanding of the practice, starting with smaller position sizes and less leverage.
Understand Order types : Traders often use combinations of order types such as stop loss and make a profit to reduce risk and open complex positions. These types of orders can help by setting specific profit or loss targets and closing positions automatically.
Divide your positions : you can decrease your risk by spreading a position in separate parts. Creating a profit level ladder allows traders to capture profits incrementally.
Pay attention to rates and interest : when you open a leveraged position, you must pay interest on the borrowed capital. Margin trading Bitcoin and other crypts incur ongoing fees that can quickly reduce your profits. You can take advantage of zero rate trading leveraged at BBOD to avoid paying fees.
Set well-defined goals and reduce your risk : you must follow a concrete risk management strategy. This strategy must establish a clear profit target and you must comply with it. Stop loss levels and adherence to an exit target are very important.
And the last and best advice: "don't be greedy".Check out BBOD's website at
www.bbod.io
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