In 2021, the pattern of leveraged margin trading in cryptocurrency will continue expand. Through April, the prices of cryptocurrencies were high that resulted in massive profits for traders. Prices soon fell again and it was a different story, read more?

It is a risk to leverage money regardless of what the market might be moving, or how talented you might be. It’s essential to understand the dangers of margin trading.

What is margin trading?

Margin trading is about trading with borrowed or leveraged money. In order to qualify for a loan, you need the collateral or margin first. This is a deposit which is held by the exchange until you pay back the loan. In accordance with the regulations of crypto-exchanges, you’re allowed to take out loans that are more than the amount of capital you have. It’s the ratio of what you have put in versus what you get out, which is referred to as leverage.

To open leveraged trading within traditional markets traders have to communicate with brokers. Margin trading is easier in the cryptocurrency world. Anyone can profit from the centralized and decentralized platforms that lend leverage making the process easier. Leverage trading may result in higher profits, but also more losses.

How do margin trades work?

Leverage trading for Bitcoin or other cryptocurrencies basically lets traders increase their profits by offering them leverage between 5x up to 100x the amount required. BitMEX is one of the best platforms to offer trading leverage to traders for different cryptocurrencies.

Margin-related positions can be separated into two categories: long and short. When a trade is long, the trader buys an asset for a low cost in the hope of selling it at a higher price. And, on the other side, the short trade is quite the opposite of this. The trader purchases an asset and then sells it in the hope to buy it back at the lower cost.

In both instances, the trader earns profit by the difference in value of the cryptocurrency asset when opening or closing any position.

Let’s get this figured out with an example

If you were to invest $10,000 into any cryptocurrency like Bitcoin with a leverage ratio of 1:10 with a margin of 10 percent, you’d only have to invest $1000.

If you were to trade crypto without leverage, you’ll have to put in 10,000 dollars, which is an impressive amount more. If the cost of Bitcoin increases, however the profit margin is the same.

That is, when leveraged trading Bitcoin, much less capital is needed upfront to earn the same profits. It is crucial to keep in mind that the opposite could be the case if Bitcoin’s cost were to fall.

If you think that Bitcoin is going to appreciate in value soon. In order to profit from this, you should open a long position with 10x leverage and the margin is $1,000. Your stake will now be $10,000. A 10% increase in the price of BTC will result in $1,000 of profits (minus any fees that are associated with it).

The return on equity (ROE) of the stake – the amount of profit divided by the margin will be 100 percent. The profit you earn at a ROE of 10 percent would be only $100 if you did not leverage. Cross Margin and Isolated Margin

BitMEX employs two different methods of margin trading:

Cross Margin

Isolated Margin

In the exchange platform, it is possible to change between one and the other, by adjusting the slider of leverage in the box ‘Your Position’ found on the left hand right-hand side of the section for trading.

Cross leverage can be used by shifting the slider left and you could also utilize isolated leverage for the other numbers listed as (2x 3x, 4x, 5x or 5x.)

Make sure that the isolated lever does not add to your position. As you move the slider it will change how much space is available. Therefore, you must

Change the amount manually.