Requirements for Crypto Margin Trading

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Trading Crypto Currencies with Leverage

Crypto Trading offers an alternative to trading in securities and binary options. The market is enjoying increasing liquidity and offers good opportunities to make profits with Crypto Trading. In this article, we explain what is needed to get started and how you can get started trading with Bitcoin & Co.

Requirements for Crypto Trading

To start trading Crypto currencies you will need a Crypto Wallet and a trading platform. Once everything is set up and the account has been successfully verified, it is as simple as filling out a form and waiting for the transaction to be processed.

In other words, if you want to trade cryptocurrencies on margin, you need:

  • A wallet device for cryptocurrencies (or two)
  • Access to a exchange platform for cryptocurrency trading

Crypto Wallets

A Crypto Wallet is the place where you store encrypted passwords and coins (the synonym in the real world is the bank account). A cryptocurrency exchange is like a stock exchange or like a currency exchange at a foreign airport. At these exchanges, cryptocurrencies can be exchanged for other cryptocurrencies and paper currencies such as US dollars and euros. Just like trading shares, you need a bank account and access to the stock exchange. Crypto trading works with the same mechanisms.

What you should know before you start Crypto Margin Trading

There are few things about trading crypto currency to know that go beyond the above. Below are some of the most important things you should know before you start trading Crypto:

A Crypto currency exchange does not take place on the regular exchange. In the following we will explain how Coinbase works. You can also use Coinbase Pro (formerly known as GDAX), the pro version of Coinbase with lower fees and another marketplace.

Risks and Opportunities by Market Capitalization

The cryptocurrency market made a very volatile start to 2018. You can make a fortune in one moment and lose it in the next, whether you trade Bitcoin, other coins or the GBTC Bitcoin Trust. Think about how you can minimize risks and protect yourself. You should also not make long-term investments with all your investable resources.

TIP: If you only trade the top currencies according to their market capitalization (currently these are the Bitcoin and Ethereum coins) or GBTC, then the risk of losing everything overnight is low. Not excluded, but still low. Other cryptocurrencies are much riskier, but can offer quick profits on a good day.

For those who would like to enter Crypto Trading in spite of the above hints:

  • A beginner should start Crypto Trading by choosing a company with a good reputation that offers an exchange and a digital wallet. This helps keep the process simple.
  • A beginner should also start trading coins with high market capitalization. Currently these are Bitcoin (BTC) and Ethereum (ETH). This may change in the future.
  • A good start for Crypto Trader is possible on Coinbase.com. This is currently the only platform that offers a wallet for Bitcoin, Ethereum, Litecoin and a currency exchange at the same time.
  • After you have completed the first trades on Coinbase, you can transfer your trading activities to GDAX and other exchanges such as Bittrex, Binance or Kraken.

TIP: A good first step into crypto trading is to buy a large cryptocurrency like Bitcoin, Ether or Litecoin. Then you will probably want to trade EUR or USD against coins on an exchange like the Binance. Once you are familiar with it, you can try to exchange BTC and ETH for other cryptocurrencies and make a profit. Trading crypto pairs can be lucrative. However, this form of crypto trading is more complex and often riskier than buying a single cryptocurrency as an investment.

TIP: As a beginner, you should not engage in margin trading. Cryptocurrencies are very volatile. With margin trading, you risk losing everything in a single moment.

Finally, with crypto trading you also have to consider the tax consequences. Profits from trading transactions are taxable, losses can be offset. The tax authorities are also no exception when trading cryptocurrencies and insist on their profit shares.

Frequently asked Questions about Crypto Margin Trading

What is Margin in Crypto Trading?

Margin is the amount of money you hold in your trading account as a pledge for your leveraged trade. Leverage means that you trade with more money than you actually have in your trading account. For example, if you trade with a 3x leverage, your margin will be one third of your actual position. Let’s say you have 0.01 BTC in your trading account and you want to trade with a position of 0.03 BTC, then the broker gives you a loan of 0.02 BTC. 0.01 BTC is what you bring in from your side – it’s the margin of your trade.

Which Bitcoin Exchanges allow Margin Trading?

When it comes to cryptocurrency margin trading we have to differ between Bitcoin margin trading and altcoin margin trading. A lot more online brokers allow for leveraged BTC trades, while only few offer altcoin trades with leverage. The best platforms for BTC margin trading are PrimeXBT (100x), PrimeBit (200x), Bybit (100x), BitMEX (100x), Overbit (100x), Duedex (100x) among others that are less well-known and therefore have less trading volume. The only platform where US Americans can trade cryptocurrencies with leverage is Kraken (5x).

What’s the Minimum Stake for Crypto Margin Trading?

Crypto margin trading is more or less available for everyone as the minimum deposits on crypto brokers is very low, mostly it’s round about 1 USD. This is a new phenomenon in financial markets as traditional trading account, like retail stock investment accounts etc. usually require minimum deposits of a few thousand dollars.

How to calculate Margin for Trading?

Basically, the margin is calculated from the position size and the used leverage of a trade. If you want to trade with a position size of 1 BTC with a leverage of 10x, you only need 0.1 BTC margin. However, professional traders usually use a specific formula to calculate their exact position size in relation to their stake and their stop loss order.

Is the Interest charged daily when Trading on Margin?

With most crypto margin brokers such as BitMEX & co there is a funding fee that occurs every 8 hours. So the longer your position stays open, the more often you will pay (or receive) the funding fee that is exchanged between long and short positions. So the usual interval is 3 times a day, not only once. One exception to that is PrimeXBT, there the roll-over fee actually occurs every 24 hours. See a list of all crypto margin brokers here: https://themargin.io/cryptocurrency-perpetual-contracts-fees/

How to open a Short Position in Crypto Margin Trading?

Opening a short position in crypto markets is very simple. You just need to signup with a broker, which is quick and easy without KYC or anything, as long as you choose a specialized cryptocurrency broker where you can simply deposit and withdraw cryptocurrencies. As soon as your deposit has arrived you can open a short position in the market of your choice. A short position is nothing else than a sell order based on a margin trade. You can use leverage to trade with a larger position for more profit.

How to avoid losing Money when Trading Cryptocurrency on Margin?

The No one measurement to avoid losing money is to always use a stop loss order. Depending on the broker platform you can either set a stop loss right away, together with opening the position, as part of the position settings. Or, with some brokers, you have to set the stop separately right after you’ve opened your position. You will find those details in the order widget of your broker platform.
Attention: Residents and citizens of the USA are not allowed to trade cryptocurrency on leverage (derivatives), so the brokers mentioned above on this page may not be used in the US or by holders of a US passport. To find out where US Americans can legally trade crypto read this page.

 

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