Explained: Margin Trading For Cryptocurrency
Margin trading with cryptocurrency allows users to borrow money against their current funds to trade cryptocurrency “on margin” on an exchange. In other words, users can leverage their existing cryptocurrency or dollars by borrowing funds to increase their buying power (generally paying interest on the amount borrowed, but not always). For example, you put down $25 and leverage 4:1 to borrow $75 to buy $100 worth of Bitcoin . The only stipulation is that no matter what happens, you’ll have to pay back to $75 plus fees. In order to ensure they get the loaned amount back, an exchange will generally “call in” your margin trade once you hit a price where you would start losing the borrowed money (as they will let you borrow money to trade, but they don’t want you losing that money). A margin call can be avoided by putting more money into the position. A given exchange will have a range of different leveraging options (2:1, 3.33:1, 4:1, 100:1, etc.). Mar...