Crypto margin trading comes with significant benefits and risks. Learn all about margin trading in our guide including the best crypto margin trading platforms.
Also known as leveraged trading, crypto margin trading is a type of trade where an investor uses borrowed funds to bet on the price of a cryptocurrency going up or down.
In effect, margin trading lets you potentially magnify your gains using leverage, but it can equally magnify your losses.
For beginners, it's easiest to understand crypto margin trading with an example.
So let's say you're bullish on Bitcoin. You think the price is going up by 10%. You could buy Bitcoin, wait for the price to increase, and sell once it has. But you've only got $100 to invest. So you'll make a $10 gain.
But with crypto margin trading, you can increase your exposure to Bitcoin. You can borrow $1000 using your $100 and if the price of Bitcoin increased by 10%, you'll end up with a $100 gain.
That's the basic idea of margin trading, but it gets a little more complicated.
For starters, you can actually bet on the price going in either direction by opening a short or long position:
As well as this, you can choose the amount of leverage you borrow when you open your position, for example, 1X, 2X, 3X leverage, and so on. Margin leverage can go up to 25X and higher.
Often, when looking at margin trading products, the leverage is expressed in ratios - for example, 100:1. So to open a position, you’ll need to have or add funds to your account equal to the collateral needed to fit that ratio, also known as your margin.
There’s plenty of jargon around crypto margin trading you need to know about - and that starts by understanding your margin - and there’s plenty of jargon to cover:
When you're margin trading, you might see the terms isolated margin trading and cross margin trading pop up, so it's important to understand what they mean:
Both have pros and cons.
As well as this, some platforms offer smart cross margins. These products let traders meet margin requirements by offsetting positions in opposite directions. For example, having a long and short position open, and managing any margin deficiency in either direction with the gain from the other position.
Weighing up spot trading vs. margin trading? It’s not quite so straightforward and you should carefully consider the pros and cons of each based on your individual circumstances. Spot trading is better suited to beginners who want lower-risk investments, while margin trading may be a potential option for more experienced traders, with a high appetite for risk.
The most obvious benefit of crypto margin trading is the potential to maximize your gains through leverage. Crypto margin trading effectively allows investors to open larger positions with less capital. But all this comes with risk - and the most obvious one? You won't always win the bet.
Just like crypto margin trading can amplify your gains thanks to leverage, it can also amplify your losses. Let’s go back to our example above to explain, you’ve borrowed $1000 using $100 and opened a long position on Bitcoin, but the price of Bitcoin falls by 10% instead - so you’ll lose $100, and either liquidate your position or have to add more collateral to maintain your margin.
Crypto is a highly volatile market, so prices can move a substantial amount in a day, or even just in a couple of hours, which makes crypto margin trading one of the most high-risk investments going.
And even if you do get lucky and predict the right price movements initially - especially for newer investors, it’s vital to know when to take your profits. Just like gambling in traditional markets, knowing when to walk away is key if you don’t want to end up with significant losses.
The precise fees you'll pay for crypto margin trading depend on the platform you're using to trade.
However, most crypto exchanges offer fixed fees based on the margin pair trading. These fees are normally a small percentage - i.e., 0.01% or 0.02% and you'll generally pay this when you open your position, as well as daily as an interest rate for the borrowed funds until the point you close your position.
Looking for somewhere to trade with leverage? You’ve got plenty of options. Some of the best crypto exchanges for crypto margin trading in 2023 include:
We’ve made it clear crypto margin trading is a risky business, but here are some additional tips for all investors considering crypto margin trading:
Yep. If you’ve got gains, your tax office will want a cut. We’ve got a complete guide on crypto margin trading tax that covers everything you need to know - but in brief, you’ll generally pay Capital Gains Tax on any gain from crypto margin trading at the point you close your position.
Koinly can help you keep track of your realized PnL from margin trading, futures, leveraged tokens, and more easily - so when it comes to tax time, you’re covered. Best of all, it’s completely free to sign up, you’ll only ever pay for Koinly when you want to download your report.
More burning questions? We got you.
Crypto margin trading is a high-risk investment, but if you’re asking about the security around margin trading, it very much depends on the platform you’re using as to how safe your crypto is. You should always DYOR and only use reputable exchanges, and never hold more crypto than you need to on an exchange long-term.
Yes - you can margin trade Bitcoin on many crypto exchanges including Binance, Kraken, and KuCoin.
You can short crypto by opening a short position on a cryptocurrency. To help you, we’ve got a complete guide on how to short crypto.
You can make Bitcoin margin trades on many crypto exchanges including Binance, Phemex, and Crypto.com. Check out our list of the best crypto margin trading platforms above to help you find the right platform for you.
A margin call is a notification from the platform you're using to margin trade that your margin trading account is low on funds and your collateral is at risk of liquidation.
The liquidation price is the point at which your position enters liquidation - so your collateral is too low to maintain your position and as such, it is sold off to minimize losses.
Some investors have seen strong success with margin trading, while others have seen severe losses. If you’re going to margin trade crypto, never invest more than you’re willing to lose, and make sure you understand the very real risk of loss before doing so.
If you go long when you should’ve gone short, or vice versa, and you don’t maintain your margin, your collateral will be liquidated and you’ll lose your initial investment.
The biggest downside of margin trading is magnified losses. Although many traders want to focus on the magnified gains, the losses are equally much steeper than with spot trading. You should carefully consider whether crypto margin trading is the right product for you before investing.
Very. Crypto margin trading is a high-risk investment and many investors have lost far more than they could afford to because they didn’t understand the very real risk of magnified losses in a volatile market. You should always make sure you’ve calculated the exact loss you may be facing should your position liquidate before investing.
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