Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Jan 22, 2024
This article has been fact checked and reviewed as per our editorial policy.

Crypto Margin Trading: Your Ultimate Guide

Crypto margin trading comes with significant benefits and risks. Learn all about margin trading crypto in our guide including the best crypto margin trading platforms.

What is crypto margin trading?

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.

How does crypto margin trading work?

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 increases 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.

Long vs. short margin trading

For starters, you can actually bet on the price going in either direction by opening a short or long position:

  • Short position: You bet on the price going down. To do this, you'll borrow crypto at its current price to repurchase it when it drops and make a profit.

  • Long position: You bet on the price going up. To do this, you'll borrow crypto at its current price to sell it when the price rises and make a profit.

Leverage ratios

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.

Margin levels, margin calls, and liquidation

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:

  • Your initial margin is the collateral you add to open your position.

  • Your margin level is the amount of funds the exchange or platform requires you to hold in your margin account.

  • Your maintenance margin is any additional collateral you need to add to maintain your position. For example, if you've opened a short position, but the price has instead risen, then your margin level will change and you may get a margin call.

  • A margin call is a notification from the exchange or platform you're using that your margin level is unhealthy and funds need to be added to prevent liquidation.

  • Finally, liquidation is the forced sale of your collateral to cover losses. As this is generally automated by crypto exchanges, it's also known as forced liquidation.

Isolated margin trading vs. cross-margin trading

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:

  • An isolated margin is a margin for a single position. Any margin deficiency or liquidation will not impact other positions in your portfolio.

  • A cross margin is a shared margin balance for multiple positions. Any margin deficiency from one position may be covered by a gain from another position.

Both have pros and cons.

Isolated MarginCross Margin
Margin assigned to a single positionMargin shared across positions
Any margin deficiency will not impact other positionsReduces risk of margin call and liquidation
More suitable for highly leveraged positionsMore suitable for traders looking to manage multiple positions easily

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.

Is margin trading better than regular trading?

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.

Spot TradingMargin Trading
The most basic form of investing in cryptoSpecific trade revolving where users utilize leverage to bet on crypto price movements
Instantly buy or sell the asset itselfUser provides collateral in exchange for borrowed funds
Once a price is agreed, the trade is complete and ownership transferredOpen a position and only realize a gain/loss when the position is closed

What are the benefits and risks of crypto margin trading?

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.

ProsCons
Gains are increasedLosses are increased
Open larger positions with less capitalVolatile market conditions are difficult to predict
Lets you keep fewer funds on an exchangeMany investors struggle to know when to close their position

What fees are there for crypto margin trading?

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.

5 best platforms for crypto margin trading

Looking for somewhere to trade with leverage? You’ve got plenty of options. Some of the best crypto exchanges for crypto margin trading in 2024 include:

ExchangeLeverageProductsFeesTrading Pairs Available
Binance10XMargin, futures, options & leveraged tokens Tiered daily interest 600+
Kraken5XMargin & futures Fixed daily fees 100+
KuCoin10XMargin, futures & leveraged tokens Fixed daily interest 100+
Phemex5XMargin & perpetual contracts Tiered daily interest 100+
Crypto.com3XMargin only Fixed daily interest 100+

Binance margin trading key features

  • Isolated & cross margin trading

  • 600+ trading pairs

  • Low trading fees

  • High liquidity

  • Margin insurance fund

  • Cooling off period to avoid excessive trading

  • Margin, futures, options & leveraged tokens

Kraken margin trading key features

  • Isolated & cross margin trading

  • 100+ trading pairs

  • Low, fixed daily fees

  • High liquidity

  • Margin & futures

KuCoin margin trading key features

  • Isolated & cross margin trading

  • 100+ trading pairs

  • Fixed daily interest

  • High liquidity

  • Easy to set up stop limit orders when opening position

  • Automatic borrowing and repayment

  • Margin, futures & leveraged tokens

Phemex margin trading key features

  • Isolated & cross margin trading

  • 100+ trading pairs

  • Only specific assets can be used as collateral

  • Fixed daily interest

  • Easy to set up stop limit orders when opening position

  • Auto borrow and repay

  • Margin & perpetual contracts

Crypto.com margin trading key features

  • Isolated, cross, and smart cross margin trading

  • 100+ trading pairs

  • Fixed daily interest with discounts for CRO holders

  • Easy to set up stop limit orders when opening position

Best tips for crypto margin trading and risk management

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:

  1. Only invest what you can afford to lose: Remember, your losses are amplified. So do the math when you’re opening a position and make sure you understand the potential loss, and whether you can afford to lose it.

  2. Start small: When leverage can go as high as x125, it can be tempting to shoot for the moon, but don’t. Start small, at least initially, and ensure you understand the likelihood of losses before you open larger positions.

  3. Take your profits: Just gamblers on a winning streak at a casino, when the going is good it’s tempting to keep reinvesting those gains, but you should regularly take profits when you can as the market can change quickly.

  4. Utilize stop loss orders: Stop loss orders are a type of order that can limit losses or lock in profit on an existing position automatically, so when the crypto you have a position on rises or falls to a certain price, you'll automatically close your position. It's an effective way to ensure you minimize your losses, especially if you’re not always actively trading.

  5. Keep a separate trading account: It’s wise to have a dedicated margin trading account to ensure you don’t end up using assets you wanted to hold as collateral.

  6. Make sure you understand what you're doing: Our guide covers the basics of crypto margin trading, but there’s plenty more information available on crypto margin trading strategies for those who want to become more educated and experienced investors.

  7. Use well-regulated exchanges: Margin trading crypto in the USA is very stringently regulated due to the risks involved. But realistically, especially when you're dealing with increased risk and exposure, you want an exchange that you can rely on with your funds, and where the customer service team will promptly respond to any concerns. Learn more about the safest and best crypto exchanges in the USA.

What about tax on 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.

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FAQs

More burning questions? We got you.

Is crypto margin trading safe?

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.

Is crypto margin trading in the USA legal?

Yes, but it's very tightly regulated. Exchanges offering margin trading services must comply with guidance from the CTFC and NFA. As such, many crypto exchanges that do operate in the USA, opt to withdraw margin trading services for US investors.

Can I margin trade Bitcoin?

Yes - you can margin trade Bitcoin on many crypto exchanges including Binance, Kraken, and KuCoin.

How do I short crypto?

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.

Where can I make Bitcoin margin trades?

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.

What's a margin call and what triggers it?

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.

What is the liquidation price?

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.

Is margin trading crypto a good idea?

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.

What happens if you lose a margin trade on crypto?

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.

What is the downside of margin trading?

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.

How risky is margin trading?

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.

Disclaimer
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