Margin Trading is trading various assets through an exchange for money issued on credit by a broker.

Trading is one of the most popular areas of activity. Income in trading is generated when a financial market participant sells and buys various assets while he is guided by the difference in price at different times. It is this difference that determines the amount of income.

There are quite a few different strategies to get the expected result. Most cryptocurrency exchanges also provide margin trading, which involves trading in an amount greater than the client’s balance. Simply put, a broker provides a loan with a certain ratio relative to the amount in the account and rating. According to generally accepted European rules, legal brokers cannot set values higher than 1:30.

Features of margin trading

Classic margin trading in the Forex market involves an interest-free loan for clients. Due to the additional reserve of funds, traders can increase the deposit, subject to wisely selected strategies and assets for purchase and sale, resulting in a larger profit. However, in practice, brokers have been charging a certain commission percentage for additional assets or funds over the past few years. Conditions vary on each platform.

When opening leveraged positions, you need to carefully calculate the potential profit. Please note that the broker reserves the right to forcefully close the trader’s positions if the price of the selected asset falls below the minimum acceptable margin value. After this, you usually receive a notification in your personal account about replenishing the balance in the deposit account.

Advantages and disadvantages

Whether or not to use raised funds for trading is up to each platform user to decide for themselves. This strategy actually provides several advantages:

• the ability to open larger transactions even though the actual capital for them is not enough;
• potential increase in profit margins;
• the ability to trade different assets with wider market coverage, which has a positive effect on the final result due to risk diversification;
• faster achievement of designated financial goals than when trading without attracting additional credit funds.

However, before you sign an agreement with a broker for loan funds, you always need to sensibly assess all potential risks, taking into account the current situation on the market, excluding subjective emotions of fear and greed. Main disadvantages of Margin Trading:

• depending on the terms of the platform, leveraged transactions may not be available for all assets;
• in the event of an incorrect forecast and an actual drop in the price of the selected asset, financial losses will be much higher, taking into account the loan amount and interest on the loan;
• automatic closing of orders if asset prices drop below a threshold value.

Margin trading is the optimal solution for experienced traders who more subtly understand all the financial market processes and successfully practice aggressive strategies to obtain larger profits.