Bitcoin Margin Trading Guide & Best Exchanges (2021 Updated)
What if you could leverage your long and short positions on Bitcoin by 2X, 10X or even 100X, without having actually to hold the capital required to open such positions?
Welcome to our margin trading guide. In this guide, you will learn what margin trading in Bitcoin and crypto is, how does it work, what exchanges allow margin trading, and more.
What is Bitcoin Margin Trading?
Bitcoin margin trading, in simple words, allows opening a trading position with leverage, by borrowing funds from the exchange.
For example, if we opened a Bitcoin margin position with a 2X leverage and Bitcoin had increased by 10%, then our position would have yielded 20% because of the 2X leverage. With no leverage, it would have been only a 10% ROI.
Margin leverage can also be 25X and even higher, despite the risk, the same position as described above would have yielded 250% (instead of 10% with no leverage).
How does Bitcoin margin trading work?
In most cases, the exchange provides loans to the traders so they can enlarge their capital to be used for margin trading. This way, traders can open positions with high leverage. The exchange doesn’t have many risks since every position has its Liquidation price, which is based on the level of leverage.
How does Bitcoin margin trading work?
In most cases, the exchange provides loans to the traders so they can enlarge their capital to be used for margin trading. This way, traders can open positions with high leverage. The exchange doesn’t have many risks since every position has its liquidation price, which is based on the level of leverage.
Best Bitcoin & Crypto Margin Trading Exchanges
|Binance-branded productHigh trading volume and liquidityIndustry-Leading Security (SAFU insurance fund)Futures & Perpetuals. Max margin 125x||98||Visit site50$ voucher|
|Huobi Futures||Simplified trading interface with a variety of features, veteran exchangeOne stop shop for trading futures, options, and perpetual swapsAn abundance of trading pairs to choose fromFutures, Options & Perpetuals. Max margin 1000x||96||Visit site|
|Bybit||Great UI/UX, extremely intuitive platformHighly responsive support teamReliable and highly-secured platformPerpetuals. Max margin 100x||96||Visit site|
|50% BONUSPrimeXBT||Not limited to crypto: Includes FX, commodities, indices and moreAdvanced trading tools, fully customize your trading dashboardSafe to trade: So far, never been hackedFutures & Perpetuals. Max margin 100x||91||Visit site50% Deposit Bonus (code: POTATO50)|
|User-friendly interface with seamless navigation across the boardSecurity and stability of KuCoinLite version availableFutures & Perpetuals. Max margin 100x||86||Visit site|
|Simple and intuitive trading interfaceVariety of different cryptocurrencies and trading pairsBoth traditional futures contracts and perpetual are available for BitcoinFutures & Perpetuals. Max margin 100x||85Read review||Visit site|
|BaseFEX||User-friendly trading interfaceLarge variety of cryptocurrencies available for trading24/7 Live Chat supportFutures & Perpetuals. Max margin 100x||83Read review||Visit site|
|Poloniex||Veteran exchange – trading since 2014Margin variety, Bitcoin perpetual futuresUser-friendly interface, great UI/UXDerivatives. Max margin 2.5x||83Read review||Visit site|
|Plus500||Well-known and regulated CFDs exchangeGreat option for beginners: Demo account availableIndustry-Leading FX brandCFDs. Max margin 30x||82Read review||Visit site|
|Currency||Not limited to crypto: tokenized shares availableIntuitive trading platform with splendid UXRegulated exchange (Gibraltar licensing)Derivatives. Max margin 20x||81Read review||Visit site|
|Bityard||User-friendly interfaceQuick registration processExcellent customer supportPerpetuals. Max margin 100x||81Read review||Visit site|
|PrimeBIT||User-friendly interface and intuitive designVery high leverage – 200XResponsive customer support teamPerpetuals. Max margin 200x||79Read review||Visit site|
|Bitfinex||High volume & liquidityVariety of coins and base assetsVeteran exchange – trading since 2012Derivatives. Max margin 3.3x||77Read review||Visit site|
|Comparatively low feesVariety of position options and order types: high liquidityTrusted US-based exchange – trading since 2011Derivatives & Futures. Max margin 5x/50x||73Read review||Visit site|
|XENA||Low latency for fast order placement and response timeAdvanced trading indicatorsCompetitive feesPerpetuals. Max margin 100x||71Read review||Visit site|
How to Short Bitcoin and Other Cryptocurrencies
Want to make gains while Bitcoin price is decreasing? It’s possible. A short position on Bitcoin basically means that we believe in a coming-up drop in the Price of Bitcoin. Technically, short positions work by selling the base asset first, in this case, Bitcoin, and then later buying it. You don’t have to worry; the exchanges do this process automatically for us.
The second role for shorting Bitcoin is the option to hedge a cryptocurrency portfolio. For example, if the crypto portfolio consists of 5 Bitcoin and we want to hedge against the risk of a possible Bitcoin’s decline, a 10X leveraged short position could be opened, and it would be equivalent to 40% of that Bitcoin portfolio.
To open the position, the amount required is only a tenth of it (10 times leverage). That means that we need to hold only 0.2 Bitcoin on the margin exchange in order to hedge 40% of a portfolio valued 5 Bitcoins. Another advantage is the fact that only a small amount is stored on the exchange itself. As you might notice, from security reasons, it’s better to store the least amount possible on crypto exchanges.
Bitcoin Margin Trading Tips
Since margin trading is risky, hence, it’s not recommended for beginners in crypto trading, we had gathered some must-read trading tips:
Always start trading with small amounts: First-day margin trading? then always start small. Get the necessary confidence you need before jumping into the deep raging water of the leveraged trading.
Don’t go all-in at once: Unless you’re sure about your trading skills, it’s better to divide your position into portions, and create a ladder of prices. This way, you can reduce the risk while averaging down the entry price of the position. The same is true for taking profit. You can set-up a ladder of take-profit levels.
Understand fees and liquidations: Always know how much you are paying for fees and what type of fees you are paying. Trading on margin carries ongoing fees, make sure they don’t eat up your profit. The same is true for the liquidation Price ; you should know that number in case the position is reaching there.
Risk Management: When trading on margin, set clear rules of risk management, beware of excessive greed. Take into account the amount you are willing to risk, keeping in mind that it can be lost entirely. Set levels for closing positions, taking profit levels, and the most important – set up stop-loss levels.
Price manipulations and short/long squeeze: In an unregulated market like Bitcoin, it’s not rare to see occasional short and long squeezes. When the number of short or long positions is high, it means that a market mover can make easy money when creating an opposing price move, forcing those positions to liquidate (and push the price even more in that direction). The following image describes a classic event of a long squeeze followed by a short squeeze. a classic manipulation of the Bitcoin price.
Short-term trading: Cryptocurrencies are considered to be very volatile assets. Margin trading of crypto currencies doubles the risk, and even more. Therefore, try to make short-term trading leveraged positions. Moreover, although the daily fees or margin position is negligible, in the long term, the fees can amount to a significant sum.
Pay attention to fundamentals: Major events surrounding the crypto space, like Bitcoin ETF decisions, SEC regulations and so on, can have a significant effect on the price of Bitcoin. Even though many traders rely only on technical Analysis, keep in mind that those events might have a critical impact on the crypto market.
Extreme volatility – don’t leave the screen: Crypto trading sometimes has extreme fluctuations that occur in both directions, creating candle wicks. The risk, in this case, is that the deep will touch our liquidation value. It could happen where the leverage is relatively high, so the liquidation value is relatively close.
In fact, you can take advantage of these deeps and try to set closing target positions, hoping the deep will run over them, leaving you with a decent profit and then going back to the previous price.
Costs and Risks of Margin Trading
As mentioned above, the cost of the margin position includes paying the ongoing interest for the borrowed coins, and fees for opening a position with the exchange. As the chance to earn more increases, so does the risk of losing more.
The maximum we can lose is the amount we invested in opening the position. This level is called the liquidation price. The liquidation price is the price where the exchange automatically closes our position, so we don’t lose any of the money we were loaned and only lose our own money.
Example: if we are talking about standard trading, leverage 1:1, the liquidation price is when the position reaches a value of zero. As the leverage increases, the liquidation value will get closer to our buying price. For example, If the Bitcoin value is $1,000, and we bought one Bitcoin (long) with leverage of 2:1. The cost of our position is $1,000. Besides, we have also borrowed a further $1,000.
The liquidation price of our position will be a little over 500 USD – because, at that level, we lose exactly our initial $1,000, plus interest and fees. Margin trading can also be against the market, so we can also have a short position with leverage.
High leverage risk: The higher the leverage, the closer the liquidation price is. The rule here is dividing 100 by the leverage level will grant you the percentage until you reach the liquidation price. Example: a positive with 1:25 leverage needs only a 4% move (100 divided by 25) to get liquidated. 4% can be achieved quickly in the volatile crypto markets.
It is now possible to trade margin on most exchanges. The advantages of leveraged trading are very clear, and another significant benefit comes from the security aspect. Crypto traders should strive to minimize the number of coins they hold on exchanges. Exchanges are considered hot targets for hackers, and in recent years there have been several hackings of exchanges, including hacks of the major exchanges too.
Trading on margin allows us to open leveraged positions with no need to provide the Bitcoin required; that way, we can hold fewer coins on the exchange account.
BitMex– Established in 2014, BitMEX has gained its reputation as the leading exchange in the field of margin trading of Bitcoin by means of the trading volume. All the recent years’ Bitcoin moves had started on BitMEX. The exchange offers up to 100X leverage for long and short positions. With Our Link, you can receive a 10% discount for the first six months on the trading fees upon registration.
Further Reading – Margin Trading
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