Beginner’s guide to Margin from AZ → What is Margin trading? Should I join the Margin game or not?

Most of you have heard phrases like: What is Margin Trading?, Long go, Short, account burned…. However, you still do not fully understand what it is. Goctienao Let’s learn about these terms with you!

Margin Trading Also known as margin trading.

It is a form of transaction using financial leverage, roughly: You have 1 Bitcoin, you will use leverage to borrow more Bitcoins to trade with that borrowed Bitcoin.

Of course, the profits will be greater and the risks are also higher.

Margin Trading is a popular tool in low volatility markets like Forex, Stock Market. Currently, Margin is quite popular in the cryptocurrency market.

san-transaction-margin
san-transaction-margin

What are the advantages and disadvantages of Margin Trading?

Advantages of Margin

It is possible to make a profit regardless of whether the market goes up or down. If it is simply Hold coin, buy low and sell high, and Margin can be earned at any time.

Using leverage to increase capital for trading, can create larger transactions x10, x25, x50, x100…

Disadvantages of Margin

Of course, big profits are The risk will also be high.

If you hold regular coins, the price drops, you still have the same amount of coins, and wait for the coin price to increase and sell. But if playing Margin, the coin price falls below a certain milestone (depending on which leverage is used), the account may be burned (lose that coin).

Margin Trading parameters

Leverage

When using leverage, you will be x times the original account.

For example, if you use 10x leverage, you can trade with 10 times your initial capital.

Position (Position)

Long Position: Buy into

Short Position: Sold out

Liquidation Price

This is the liquidation price.

When the coin price exceeds this price, the exchange’s system will immediately liquidate all your coins on that order.

What is the principle of Margin Trading?

When you execute the command LONG/SHORT with leverage x with capital Y. This means that you will borrow from the floor the amount corresponding to the formula (x-1)*Y to execute the command LONG/SHORT there.

After closing the order LONG/SHORT You need to return the correct amount borrowed from the exchange plus 1 loan service fee.

In case, you enter the order LONG/SHORT But the actual price goes against your prediction.

When the price hits the liquidation price, the floor will automatically liquidate to get back the capital you borrowed, the difference in this loss will be deducted directly from your original capital.

Specific examples:

    • Initial capital: 10,000$ to buy 1 Bitcoin
    • Leverage: 10x
    • Position: Long (ie Buy)
    • Closing price: Suppose to close the order when Bitcoin price rises to $11,000

At this point, you use 10x leverage, which means you will borrow another $90,000 from the exchange to buy Bitcoin for $10,000 (and you have 10 BTC)

And when the Bitcoin price rises to $11,000, you close the LONG order. That means you sold 10 Bitcoins for $11,000/Bitcoin and earned $111,000. Then you have to pay the floor $90,000, so now you have: $21,000.

So compared to the beginning, you profit: 11,000$

Suppose if the price of Bitcoin falls to $9,000 and coincides with the liquidation price. Immediately, the exchange will sell those 10 BTC and collect $90,000.

Next, you will have to pay the $90,000 borrowed from the floor, and now your account is empty. This time is Fire Account.

This is just an example for 10x leverage, there are actually 25x, 50x, 100x leverage… The more leverage you use, the higher the profit and the higher the risk.

That’s how I learned about What is Margin Trading and What is the Principle of Margin? Please continue reading post #2!

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