What is Margin Trading?

Here we are. We told you so much about Margin Trading in the past chapters that we could not make you wait for any more to teach you about it.

Margin Trading is dangerous, but it is crucial for you to know how it works. In the future, we will show you some structures that can forecast a future move down, and in this case, only the traders using Margin Trading can benefit from them. However, if you were trading this pair without using Margin Trading, those structures can indicate you a level where you should exit the position.

Margin Trading is a method that gives you the ability to enter a more significant position with your account balance.

What kind of sorcery is this?

It is not that magic. The exchange allows you to leverage your position to be able to realize bigger profits on your trades. Margin Trading is used in stocks, forex, commodity, and cryptocurrencies.

New traders usually do not understand the concept of margin. Our challenge is to enlighten your knowledge with this method, and hopefully, even if you need to read this article twice, you will be aware of what is Margin Trading, what are the advantages and the risks involved in using this technique.

First, there is a jargon you need to understand.

After registering on a Margin Trading exchange, you will discover those terms:

  • Balance
  • Leverage
  • Long/Short
  • Used Margin
  • Free Margin
  • Unrealized P/L
  • Margin Level
  • Cross

and many more…

Balance is the amount of money present in your trading account. It is often displayed in terms of Dollars or BTC. If your account falls to 0, it means that you have been liquidated. We want to avoid that from happening, that is why the other metrics are as important.

Your balance will be increasing or decreasing if you move your funds or if you close your trades. Some exchanges might make you pay some fees for holding margin trades for a specific duration, and you should consider it before choosing your platform.

To Long an asset is the equivalent of betting that it will go up, while shorting an asset is the opposite, betting on a downtrend. Long can be assimilated to buy an asset, and Short as selling.

The concept of shorting an asset can be hard to apprehend the first time. The chart of Bitcoin may be familiar to you, so in January 2018, you can easily remember the peak of $20,000. This spot would have been perfect for opening a short, and hold it for months. Indeed, the next bottom was at $3,100 after an 85% decline.

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