What is Margin Trading?

With the help of margin trading, users can increase their ability to buy things and their chance of making money from price increases. They can also make money when the price of cryptocurrencies goes down.

When you trade on the spot market with borrowed money, this is called margin trading. The trader takes them on the basis of his own assets, which is called margin (margin). Every hour, he pays a commission at an interest rate for the use of credit funds.

With the help of margin trading, users can increase their ability to buy things and their chance of making money from price increases. They can also make money when the price of cryptocurrencies goes down.

Margin is a guarantee that the client will pay back the loan according to the rules of the exchange, which is a middleman between the borrower and the lender.

The ratio of borrowed funds to margin is called “leverage.” Leverage ranges from 2x to 100x on the cryptocurrency market.

The margin call and liquidation or forced liquidation are exchange protections that keep traders from going into debt and creditors from losing money.

A margin call is when a broker tells you that you need to put more money into your account to cover the collateral for open positions. It happens when the trader’s margin level goes into the risk zone, which is different for each pair and depends on how deep the market is and how much trading is going on.

Liquidation is when you are forced to close a position in which you have lost almost as much as the margin you put up.

When the trader gets close to the risk zone, he or she gets a pop-up message or a letter suggesting that they deposit more money. If he doesn’t pay attention to the message and the price drops, the exchange will close the position.

A trader can close a position without waiting for liquidation. This can be done by hand or with the help of a stop loss. Then he’ll only lose some of the margin.

There are two ways to use margins: cross margin and isolated margin. In the first case, the trader uses all of his money to protect his open positions. In the second case, he sets aside a certain amount to protect each transaction.

When you use cross margin, the money you make on one trade can cover the money you lose on another. At the same time, one trade that goes wrong can cause all open positions to be closed.

When you use isolated margin, the closing of one trade doesn’t affect the other trades.

The index price is the weighted average price of an asset based on information from several markets. Crypto exchanges use it to make it harder for people to change prices.

Binance uses Huobi, OKX, Bittrex, HitBTC, Gate.io, BitMEX, MXC, Bitfinex, Coinbase, Bitstamp, Kraken, Binance.US, and Bybit to figure out the prices of financial instruments.

In turn, CoinEx uses data from Binance, Huobi Global, KuCoin, and Gate.io to figure out these prices.

During times of high volatility, when the index price goes outside of a certain range, the crypto exchange warns users that they are at a high risk of having to sell their positions.

If one of the venues is down for maintenance and/or its last execution price and volume update isn’t working, CoinEx temporarily takes it out of the equation and balances the weights.

You can use the index price as a trigger when setting up a stop loss. This way, you won’t lose money because of changes in the local market on the trading floor.

Long (long), or a long position, is when you buy an asset in the hope that it will go up in value. Leverage can be used to increase the amount of money that could be made when a financial instrument is sold later.

A trader thinks that the price of bitcoin will go up from 15,000 USDT to 25,000 USDT.

He puts $3,000 USDT into his margin account and borrows $12,000 USDT from CoinEx to trade with 5x leverage. The loan has a daily interest rate of 0.15%.

A trader spends 15,000 USDT on Bitcoin and then sells coins 10 days later when the price of Bitcoin has gone up to 25,000 USDT.

The business will make a net profit of:

If the same trade was made without leverage, the profit would be:

The exchange uses the money in the margin reserve fund to cover the losses of clients who trade on margin.

So, CoinEx takes out liquidation fees and 30% of the money it makes from lending crypto to the fund. If the trader’s balance goes negative after closing a position, CoinEx uses the fund to pay off the debt.

If there aren’t enough funds in the fund’s reserves right now, CoinEx pays off the rest of the debt before the due date. But the person won’t be able to take money out of the main account.

A trader must either put money into a margin account or wait until the fund has enough money to pay off all debts in order. After the debt is paid off, the exchange turns on the withdrawal function again.