What is Margin Trading?

Margin trading is an asset trading method realized by the use of funds provided by a third party. Margin trading allows users to reach much higher values compared to standard trading transactions and allows them to use leverage in the positions they choose.

Trading in the margin trade strengthens the transactions made in order to enable users to earn larger profits after successful transactions. Growth capacity as a result of trading makes margin trading effective in markets where price fluctuations are low, making it popular. Margin trading can also be used in the commodity, stock and crypto money markets.

When we look at the traditional market system, borrowed funds are generally provided by an investment stockbroker. However, this situation is different in cryptocurrency transactions. Funds in cryptocurrency transactions are provided by users in the form of interest earnings in amounts determined according to the market supply & demand in margin funds. While rare, some cryptocurrency platforms also provide margin funding for their users.

How Margin Trading Works

When a margin trade is started, it is essential that the user first reveal a percentage of the total bid value. This stage is known as an investment margin and is closely related to the use of leverage. To be more specific, margin trading accounts are used for leveraged trading. In this way, leverage defines the borrowed funds to the margin rate. In other words, margin trading accounts are used to create leveraged trading, and leverage defines the ratio of borrowed funds to margin.

Margin trading can be used to open both long and short positions. The long position indicates that the asset will increase, while the short position indicates that it will go down. While the margin position is open, the assets of the user serve as collateral for the fund borrowed.

If you want to have further information about Margin Trading and cryptocurrency market terms, you can have a look at our article “What is Amount and Margin Trading?” You can keep up to date with the crypto market by browsing our blog and news pages.