What’s all the fuss about, anyway? Is it really that secure? How can someone hedge their trades with such fluid assets as currencies and commodities? These are all important questions to answer for those who have joined the hype of Cryptocurrency. But first… what is margin trading and how does it work in the context of this exciting new financial instrument?
The basics of margin trading in Cryptocurrency are fairly simple, although, to cut through all the jargon, really: Put simply, an investor will borrow money from other investors on either an exchange-traded note or the actual stock (btc) itself. The interest rate on this borrowing varies greatly – one may use a standard interest rate, or perhaps a Euro/dollar rate. When you borrow money in this way, you’re essentially using your existing wealth to secure a loan. However, since the actual asset is not at all "real" – in the sense of having a physical piece of property or something of that nature – there is no need for a physical item of value to back up your borrowing.
This means that those who participate in this type of trade can enjoy a truly risk free (or low risk, depending on how much leverage you have) way to invest their money, since there’s no need for collateral to back up the trades, which is really where the magic happens. Many different traders have used this type of trade to double their investments, create new wealth and build new fortunes for themselves, simply by using it as a leveraged instrument. There are many different online brokers that offer these services, but there are a few things to keep in mind before you jump into the mix. First, it is important to remember that many of these platforms are operated by high leverage traders themselves. If you’re looking to take advantage of this service, it’s best to start out with one of the larger and more reliable ones, rather than an individual trader, who may not have the same experience level as some of the more experienced traders using these services.
The biggest difference between the various platforms that allow people to participate in this type of trade is that there are no physical products to be purchased. This makes the whole process a little bit more akin to trading on the stock market, in the sense that you don’t have to have a tangible product to exchange – you’ll instead be buying and selling "contracts", which is a digital form of the real thing. This also means that the market itself is non-regulated, although that could certainly change if things start to move in the right direction. With this said, however, the level of freedom that’s possible within the realm of this trade makes it a favorite for many people, since they have the ability to leave their financial investments at their leisure. There are no ongoing fees either – even if you’re not playing in an active market – so you don’t get charged anything extra for using your computer to conduct your trades.
However, the main reason why some traders choose to get into this kind of trade is because it allows them to make a profit. In the case of the larger and more mainstream internet brokers, who cater to just about every single type of trader, this is certainly not possible. With a bit of research, however, anyone can find some great deals on the smaller and more personalised traders, which are allowed by the absence of large brokerages. As a result, it allows those who want to have the flexibility of being able to operate in different types of environments to do so without having to spend a great deal of money on the process.
In order for a trader to understand how does bitcoin margin trading work, it’s important to first understand how this market works. In the simplest terms possible, the trader is buying an amount of ether or another type of virtual currency and is then selling that same amount back to the broker. The trader has complete control over their transactions and is able to change their mind at any time should they wish to do so. This is, in fact, one of the most attractive aspects of this market, allowing a person to get involved with it for almost free.
However, before getting into this kind of trade there are some factors which must be taken into account. One of the most essential things to look at when thinking about entering the margin trade is whether or not you have enough collateral. This will ensure that you can continue to pay the interest rate on the loan even while you are not using the capital that you obtained in the trade. If you have nothing to put up for collateral, you may find that you lose your trading account as you cannot refinance when needed and can potentially even face a fine being imposed on you by the IRS.
The other thing to consider is whether or not you wish to be in the market for long-term profits or whether you would like to make short trades and convert them into profits sooner rather than later. Some people prefer to trade for short term gains to see which way the market moves before holding out for the best possible results. On the flip side, some people may simply like to make some money and exit the market for a clean conscience. It is important that you decide how you want to move ahead and weigh up all the pros and cons of the trade. As well as whether or not you wish to use your own money as capital, you should also take the time to check on the rates offered by the major brokers to find the least risky and best performing trading broker online.