Margin works by using a deposit, known as margin, to provide you with increased exposure. Essentially, you’re putting down a fraction of the full value of your trade.
How does leverage work?
Margin trading platform can be a powerful tool for a trader. You can use it to take advantage of comparatively small price movements and potentially grow capital faster.
Margin trading works by using a deposit, known as “margin,” to provide you with increased exposure. Essentially, you’re putting down a fraction of the full value of your trade (Bitcoin, Ethereum, XRP, Cardano, etc..) andthe leverage platform is providing you the rest.
BTC/USD trade example
For example, you want to buy 10 Bitcoins at a price of $10,000.
To open such trade with a traditional exchange, you would be required to pay 10 x $10,000 for a position of $100,000 (ignoring any commission or other charges). If the Bitcoin price goes up by 5%, your 10 Bitcoins are now worth $10,500 each.
If you choose to sell, then you’d have made a $5,000 profit from your original $100,000 investment.
Here you’d only have to pay 1% of your $100,000 position, or $1,000 to open such trade. If the Bitcoin price rises by 5%, you would still make the same profit of $5,000, but at a considerably reduced cost.
That means that profits can be hugely multiplied.
Benefits of using Margin Trading
- Magnified profits. You only have to put down a fraction of the value of your trade to receive the same profit as in a conventional trade with any other exchange.
- Gearing opportunities. Using leverage can free up capital that can be committed to other investments. The ability to increase the amount available for investment is known as gearing.
- Gaining from the market fall. Using leveraged/margined products to speculate on market movements enables you to benefit from markets that are falling, as well as those that are rising.
Leverage trading, while being an awesome opportunity, is only available for Non-USA residents however, many users do get around the restrictions by simply using a VPN like windscribe.