Crypto Currency

Bitcoin In Boom: How Does Bitcoin Margin Trading Work?

The largest cryptocurrency just broke past the $20,000 mark that served as its highest price ever achieved three years ago. BTC currently trades at around $23,000, and as things stand, the sky seems to be the limit. Unlike the past bull run, this time around, the largest cryptocurrency gains don’t seem to be going away any time soon. There is more embrace from institutional investors and even top financial service companies like PayPal, which has fueled its ascendance.

So far, Bitcoin has recorded gains of over 220% since the beginning of the year. Such gains always spike interest among individuals who seek to enter the market to ensure they don’t miss out on the available opportunities. With the price so high, buying BTC to hodl doesn’t seem quite ideal since the price is likely to crash than add on its gains. But there is another way to make the most of this opportunity; trading, and not spot trading, where you buy the asset and try to sell it at a higher price but Bitcoin margin trading. This involves dealing with a derivative product of the asset itself on a platform like PrimeXBT, where you can access a wide variety of markets and trade them on its solid infrastructure with reliable software and a user-friendly interface that is welcoming for people with little to no trading knowledge.

The wonderful thing about margin trading is that you get to trade with borrowed funds, thereby allowing you to enter bigger positions, which wouldn’t be possible with normal trading. This magnifies your potential profits exponentially but at the same time does the same for your losses. A trader needs to understand with margin trading that they can borrow capital, albeit at relatively high-interest rates, thus increasing their leverage.

How Bitcoin Margin Trading Works

Some platforms will allow you to trade with up to one hundred times the value of your capital for an asset like BTC. Others will offer a 1:1 leverage, which means the trader can borrow up to 100% of their capital. For example, if you have a balance of 2 BTC in such a situation, you can trade up to 4 BTC, multiplying your profit potential.

What one needs to understand as a trader is that the bigger the leverage, the greater the risk of getting liquidated. Therefore, it helps to educate yourself when getting started to ensure you have a clear grasp of risk management, which will save you from losing your entire capital. Platforms like PrimeXBT will offer traders plenty of educational resources that cater to new and experienced traders to aid them with their trading. If you are beginning your trading journey, you can begin by utilizing these free resources. This can help you make more money by leveraging capital compared to using your personal funds only.

The catch here is you will have to bear with high-interest rates for the borrowed funds when margin trading. Your account will be charged automatically once a position is closed. Additionally, for trades that don’t go as predicted, you will face liquidation that can result in total losses.

How To Avoid Liquidation

One common term you will encounter during your trading is margin calls. This happens when a trade goes in the opposite direction of your prediction; therefore, you are required to add funds to your account to avoid being liquidated. If you can add the required funds to save the order, then the position will be closed automatically.

The other term is liquidation, and it involves the trade being closed and one losing all their capital. This scenario occurs once a Bitcoin margin trade loses more money than you have at hand. Like mentioned before, liquidation chances increase drastically when margin trading, and the bigger the margin you choose to trade with, the quicker you will get liquidated if things don’t go your way.

Leveraged trading is fantastic if used well and can increase your profits tremendously. Still, it would help if you were careful since liquidation will occur faster based on smaller price movements. Therefore, it is vital to equip yourself with all the necessary knowledge when it comes to risk management to ensure you make the most of Bitcoin and other assets’ opportunities.

About the author

Tirupati Gumpula

Hi, I'm a Tech Enthusiastic and founder of Popular technology blogsWay to Hunt. & Elite Tricks. Want to promote your brand? Email: [email protected]

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