How Does MarginTrading Function?
Importance of leverage trading in cryptocurrency exchange
Cryptocurrency has become one of the hottest financial assets in the world today. There are different methods of trading. The most popular method to make profits is through Margin trading.
Meaning of Margin trading
Small traders with a minimum investment can borrow large amounts of capital to get more exposure to specific assets. This will maximize their returns due to increased buying power and greater relative value of the trading position. This tool is also known as leverage trading. Leverage in cryptocurrency is the amount by which a trader multiples his position. It varies from one cryptocurrency exchange to the other.
This concept works wonders as the increase in risk is not proportional to leverage during short-term market movements. Traders can open several positions by leveraging small capital, which helps in diversifying their risk.
Prerequisites for Margin trading
Traders must provide an initial deposit to open a position called an initial margin. It will be held as collateral by the exchange. A specific amount of capital must be held in the account to keep the position, called a maintenance margin.
How Margin trading works in exchange development?
Traders can go either short or long. If they go short, profits will be made via falling crypto prices. If the traders go long, they anticipate a rise in the price of a digital asset.
When the position is closed at a profit, the exchange will release the crypto and the profits. Closure of trade and liquidation of the position will occur if traders incur a loss while margin trading. This happens eventually when the price of the asset reaches a specific threshold called a liquidation price.
Understanding margin calls
Margin calls are done by the exchange when the value of assets traded falls below a certain point. The exchange asks for more funds from traders to lower their risk. In rare cases, when the margin level is highly insecure, the position is closed by the exchange to ensure that the capital loss equals the trader’s initial capital deposit.
Factors to be considered for margin trading
Different exchanges offer different leverage rates. Interest rates should be kept in mind while opting for leverage, depending on the length of your position. Variety in order type options can lower the risk of liquidation.
Traders must also do background research of funding and support of different fiats for the exchange. Multiple payment options must also be available. KYC and AML requirements can also hamper margin trading in exchange development.
Strategies to follow for successful margin trading
Increase trade size after some time - Start with smaller position sizes and lower leverages. Maximize your exposure progressively.
Give a shot at Demo trading - New traders can practice trade in an artificial trading environment. Real market prices will be displayed, and traders can implement their strategies without loss of capital.
Know different order types - Various order types such as Stop Loss and Take Profit can be taken to lower risks and automatically close positions when targets are achieved. Traders can spread their position into separate portions.
Keep track of fees and interest - Interest costs on borrowed capital and other fees incurred during margin trading exchange development can cut into the profits.
Role of external factors - Price also gets affected due to factors such as the number of active traders, regulatory changes, and major wallet movements.
Such strategies to increase profits and widen the scope of your business are available on our platform. If you are looking out for efficient margin trading exchange development, reach out to CES. We are a leading margin trading exchange development company who offer whitelabel solutions. Our leverage exchange software supports leverage amounts of upto 100x. Our competent developers will guarantee high-performing cryptocurrency exchange solutions.