Margin Trading / Leverage Trading.
What is Cryptocurrency Margin Trading? Cryptocurrency margin trading meaning.
As you can understand from the name of margin trading, it is a type of trading that allows you to trade on the floors of your choice by giving collateral to the system. For example, with margin trading, you can trade up to 2 or 3 times the asset you have by giving collateral. Floors vary from platform to platform.
It is possible to earn high profits with margin trading. On the other hand, it is possible to experience great losses. In the simplest terms, while it is possible to gain 3 times, you can also lose 3 times.
You don’t really trade in margin trading. Let’s explain it as follows; Let’s say you have 3 ETH. You think Bitcoin will rise, and you can open a long position of 9 ETH, 3 × 3, by choosing 3 with leverage 3 with 3 ETH.
What are Short Position and Long Position?
If the cryptocurrency moves up after opening a long position, you will make a profit. As you can imagine, if it moves down, you will lose. If you open a short position, you will make a profit if the crypto currency moves in a negative direction, and you lose if it moves upwards. So, in a period of downtrend, you can increase the amount of ETH you have by opening a short position for ETH.
Opening a Position
Before opening a position, you will see a screen that varies according to the platform but generally as follows.
Crypto Margin Trading Long Short Position
The terms here mean:
Position amount: Position Size (logged as 9 ETH)
Leverage: Leverage (selected as 3)
Stop loss price: At what price to stop the loss while your position is losing
Estimated open price: At what price the position will be opened
Open fee: One-time opening fee of the position
Rollover fee per 4h: Commission fee to be charged every 4 hours if the position takes a long time.
Margin: Guarantee (3 ETH at x3 for a position of 9 ETH)
If we take the subject with a simpler expression; Let’s say we have 3 ETH and we think the price of ETH will go up. We have set our trading strategy as an expectation of 30 percent profit and a maximum loss of 30 percent. Let’s say the current ETH price is $ 1,000.
So we open a position of 9 ETH. To open a 9 ETH position, we will pay an opening commission of 0.006 ETH. Our maximum risk acceptance was 30 percent, so we set our stop-loss value to $ 900 with the formula (1000 * 3.3) / 100.
If the position is closed within 4 hours, that is, if the price of ETH drops to $ 900, the position will automatically close and 2.1 ETH will be transferred to our account (we will lose 30 percent when the price is $ 900). If the ETH price is $ 1,100, when we close the position we opened with 3 ETH at $ 1,100, 3.9 ETH will be added to our account.
It is possible to make good profits with correct stop-loss values in the crypto money market where price volatility is high. Of course, as a result of an erroneous estimate or prediction, big losses can also be incurred.
Leverage At a price change of 50 percent at x2 and a price change of 33 percent at x3, you lose all of your collateral and become a stop-out (automatic closing of the position). Therefore, it is useful to be very careful and do the calculations well.