What is margin coin? This term is often heard in the crypto investment market, for those who are new to it, they will probably not understand the meaning of this term. In today’s article cryptocurrencyin4.com will cover the most basic information about this term to help newbies make their own decision whether to use margin or not.
1 – What is margin coin?
Margin coin is a form of margin trading. With this form, you can use financial leverage x2 x5 x10 times to buy/sell for a profit many times larger than the existing capital.
Leverage margin x2 x5 x10 is the amount that the exchange lends you. You will be charged a daily fee to the broker based on the leverage ratio you have chosen. Each exchange will have different regulations on fees.
Previously, margin was the form used in forex and stock investment. Today, the cryptocurrency investment market also applies this form to diversify investment forms for participants.
Although this form brings very high profits, but besides that, it is also not less risky.
2 – What is the working mechanism of margin coin?
In the form of margin trading, there are some terms as follows:
Leverage: when using margin, you are allowed to choose different levels of financial leverage such as 2x 5x 10x, the level of leverage will depend on each exchange and each coin.
Position: there are 2 positions in the margin: “long position” and “short position”. A long position is a long position, and a short position is a short position.
Liquidation price: when the coin price exceeds the liquidation price, the exchange’s automatic system will liquidate your coins.
You have a capital amount of $50,000. The price of bitcoin (BTC) is at $50,000. You predict BTC to go up to $51,000.
Now you want to increase your profit many times, so you choose 5x leverage (leverage 5x) with a long position at the price of 1BTC = $50,000.
When BTC rises to $ 51,000, you close a long position to sell and earn a profit of $ 5000.
So, if you don’t use 5x leverage your profit is 1000$. But thanks to 5x leverage your profit is 5000$.
In case the BTC price does not rise to $51,000 but drops to $40,000 touching the liquidation price, the exchange will automatically liquidate your funds in proportion to the amount of leverage you borrowed. Each exchange will set a different liquidation price.
3 – Advantages and disadvantages
3.1 – Advantages
Margin is a form that can make a profit both when the market is up or down. As for Spot trading, you can only make a profit by buying at a low price and selling at a profit when the price is high.
3.2 – Disadvantages
The level of risk of losing all assets is very high, not suitable for newcomers, with little experience and lack of knowledge.
With margin trading, when the coin price drops to the liquidation price, your coins will automatically be sold by the exchange to liquidate. Compared to spot trading when you buy coins you hold in your wallet, if the coin price drops low, you can still keep quiet and wait for the coin price to rise again to sell for a profit.
4 – Novice investors should use margin crypto?
In summary, the transaction form margin coin is only suitable for those who prefer to venture capital, knowledge and technical analysis of price charts, experienced, quick grasp of market information.
This is a form that requires many difficult skills, so it will not be suitable for newcomers to the market.
5 – Should Margin coin on reputable exchange?
There are many exchanges that allow margin use with financial leverage up to x100x. But according to the recommendation of cryptocurrencyin4.com, the most reputable cryptocurrency exchange is Binance.
6 – Note
As mentioned above, this is a very risky form of trading, requiring investors to have experience and good analytical techniques. Please consider before deciding to participate in coin investment with this form.