What is Crypto Margin Trading

As a result of the widespread use of cryptocurrencies, crypto investors are starting to have a lot of trading opportunities. One of them is Margin trading.

In a nutshell, it is a trade where users can make large amounts of transactions using leverage with a small amount of money. Leverage ratios vary from stock to market, but the draw is usually 2x, 3x, 5x, 10x, 25x, 50x. The higher the leverage ratio, the higher the risk. For example, a user can open a $250 trade using 5x leverage with $50. There are so-called long and short positions in margin trading. A long position means the price of the coin will go up. A short position also means the price of the cryptocurrency will fall, and traders anticipate that direction.

I want to explain long and short positions with 2 examples

Long position:
We are in a bullish era and we think ETH will increase. Let the price of ETH be $3000. So, we need to open long positions. Because we think it will increase. The amount we will allocate for this is 1000 USDT. Suppose we set our leverage as 5x. In this case, we can open a transaction worth 5000 USDT (5x1000). If the price of ETH goes up 20%, reaches $3600 and we exit the deal, our profit will be 100% (5x20). So we will get 1000 USDT.

If it doesn't happen as expected;
Suppose you drop 20% Ethereum to $2400. In this case, our loss is 100% (5x20). We lost all our money.

Short position
I think Ethereum is going down. We took a good look at Ethereum charts and decided on this. Let the price of Ethereum be $3000 again. The amount we allocate is 1000 USDT and our leverage ratio is 10x. Since we think Ethereum will fall, we need to open a short position. Suppose the price of Ethereum drops 10% to $2700. If we close our trade our earnings will be 100% (10x 10%). Our net income will be 1000 USDT.

If it doesn't happen as expected;
Let's assume that the price of Ethereum goes up 10% to $3300. In this case, we will have a 100% loss (10x 10%). We lost all our money.

We do not own the cryptocurrencies we trade on margin trading. To open a transaction, we need to pay a certain amount of commission to the broker.

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