Crypto Margin Trading is a feature that allows you to trade with a higher position size, whilst defining the amount of collateral you are prepared to risk. This means that traders are able to realise larger profits on successful trades.
The capital that makes up the increased position size is essentially loaned to the trader, with his or her original stake at risk, as collateral.
This ability to amplify trading results makes margin trading especially desirable in low-volatility markets such as Forex, commodities and Indices, but crypto margin trading is also very popular.
Give me an example of Crypto Margin Trading
Bob has one Bitcoin to trade with. The current price of Bitcoin is $10,000. Bob, therefore, has $10,000 of collateral to use as margin.
With standard Spot Trading, if the price of Bitcoin increased $100, Bob would make a profit of $100 (minus any trading fees)
However, if Bob was feeling particularly confident that the Bitcoin price was going to increase, he might wish to leverage his one Bitcoin to make a larger trade. Geco.one for example, offers up to 100x leverage as part of its crypto margin trading offering.
In our example, let’s say Bob wished to use 10x leverage, using his 1 Bitcoin as collateral. At a BTC price of $10,000, his position size (with x10 leverage) would be $100,000.
If Bob opted to take a ‘long’ position - betting that the price of Bitcoin will increase – for every $1 the Bitcoin price increase, Bob’s position would be $10 in profit. However, for every $1, the Bitcoin price dropped below his entry price ($10,000), Bob’s position would be down $10.
While the Bitcoin price is moving in Bob’s predicted direction, he can hold his trade open as long as he likes (depending on the T&C’s of the exchange he was using) paying a small financing fee (usually every 24 hours). If Bob decides to close his long position when the price of Bitcoin reached $15,000, he would make a profit of $50,000 (minus fees). Had he been using 100x leverage, his profit before fees would have been $500,000.
What are the risks when Crypto Margin Trading?
Geco.one operates a ‘no negative balance’ policy on its crypto margin trading. This means that on any single trade, the maximum you can lose is the amount of margin you allocate to the trade in the first place.
To use the example above, if Bob’s 10x leverage trade didn’t work out so well and the price of Bitcoin dropped to $9,900, his initial $10,000 margin would reduce to $9,000 (before fees). If the price of Bitcoin dropped to $9,000, Bob’s 10x trade would effectively be down $10,000 - the entirety of his margin – and therefore he would be liquidated and lose the $10,000 he had opted to trade with.
How Geco.one helps you to lower the risk of Crypto Margin Trading – and maximise profits!
Geco.one’s negative balance protection feature means you can never lose any more funds than you already have in your Geco.one account.
The Geco.one trading platform also offers a full range of order options, so you can place a stop loss to reduce your liability or lock-in gains – and set a take-profit order, so you don’t miss out on any gains!
Lastly, if the cryptocurrency markets are a bit too volatile for you and you’d like to trade assets that are traditionally more stable, Geco.one allows you to use Bitcoin to trade in the Forex, Indices and Commodities markets.
Sign up to Geco.one and try Crypto Margin Trading today!