In light of the growing options of platforms available to traders that fall under this category, we have decided to do a comprehensive review of crypto margin trading, what it means, and all you need to know before adopting it. Thereafter, we will introduce you to our list of top crypto margin platforms and how we went about carrying out our review.
What Is Margin Trading?
The concept of crypto margin trading comes with its peculiar technicalities. However, the fundamentals of this crypto activity involves using borrowed funds to trade cryptocurrency. As risky as this sounds, many people are opting for this mode of crypto trading. The apparent motivating factor is that margin trading increases their chances of making huge profits. Hence, crypto exchanges have begun to capitalize on the growing affinity of crypto traders to margin trading by incorporating the trading option. With this, crypto exchanges get to offer loans, with relatively high interests, to willing margin traders. It is important to point out that just as margin trading promises pronounced profits, it also multiplies risks. The losses compound with respect to the amount loaned and its interest rate.
Having explained the fundamentals of crypto margin trading, the next section, with the help of an analogy, will introduce you to some technicalities of this trading model.
How Does Margin Trading Work?
Take for instance that, through your various crypto signal generating research, you discovered that the price of bitcoin would experience a short burst shortly. Since you are quite confident in your projections, you decide to stake all the funds in your trading account – say $1,000 – on your projected price movement. However, as you are about to execute the trade, a thought pops in your head. You start pondering on the possibility of increasing your buying power, which will, in turn, multiply your earnings. In this case, simple logic tells you that increasing your fund from $1,000 to $5,000 will generate profits 5 times that of what you would have generated originally.
And so, you decide to get a loan from a broker, or a crypto exchange, using your $1,000 as collateral. In turn, the platform offers you $5,000 to play around with, albeit with a bunch of terms and conditions, as regards the interest, the charges, and when they expect you to pay them back. In this example, you have multiplied your buying position by a factor of 5. Hence, according to the accepted terminology of this trading methodology, you have increased your position by 5x leverage. In the same way, if you had loaned $10,000 using your $1,000 as collateral, then the crypto margin platform had offered you 10x leverage. Even some exchanges provide as high as 100x leverage to their users.
However, before you get too excited about the prospect of amplifying your trades, you should note the risks that come with it. Many believe that margin trading is not for the faint-hearted, as amplification does not only affect your earnings, your potential losses also get a boost. Imagine having your perfectly researched signal, which spurred you to borrow $10,000 to execute a trade, coming up short. In other words, losses would also be on the high whenever you find yourself on the wrong side of the market. That is why we always encourage traders to enable risk management features when adopting crypto margin trading tools.
Another interesting tidbit about crypto margin trading is that it allows you to short cryptocurrency. Shorting cryptocurrency, in layman terms, is the act of betting against the crypto market. For instance, you could have reasons to believe that the price of a cryptocurrency would fall rather than rising. Hence, betting against the market is the profitable move to make, and crypto trading platforms give you the right tools to make this possible.
Seeing that crypto margin trading packs a bit of positive and downsides, it is, therefore, imperative to explore its advantages and disadvantages.
What Are the Advantages of Crypto Margin Trading?
● As explained earlier, crypto margin trading allows you to strengthen your buying position, thereby, allowing you to amplify your profits
● Also, crypto margin trading platforms allow users to short cryptocurrencies, which comes in handy when the crypto market is having a bad run. With this, you can still make profits, even when the value of a cryptocurrency dips.
What Are the Disadvantages of Crypto Margin Trading?
● The obvious drawback of margin trading cryptocurrency is its risk-laden output. Opting for this type of trading puts you at a position where you could lose all your funds and even the funds that you do not have. Remember that you are trading with a loan, and the failure to make profits equals an overdraft, especially if you do not subscribe to risk management measures.
What Are the Factors That You Should Consider When Choosing A Crypto Trading Platform?
Crypto trading platforms go about their operations in different ways. In light of this, here are the factors that should help you choose the right one.
The Legality of Crypto Margin Platform in Your Location
The first thing to do is to ascertain that crypto trading activities are legal in your country. After you must have verified the status of crypto trading in your region, the next line of action is to research the platform of your choice, as regards regulatory compliance. This assertion holds for US citizens, as the current regulatory stance of SEC has forced many crypto margin trading platforms to stop offering services in the US. Kraken, which features on our list, stands as the only top crypto exchange providing crypto margin trading options to US citizens.
Besides, some people utilize VPNs to mask their location to access crypto trading platforms that are not permitted to operate in their countries. While this is an ingenious move, it, however, puts you at risk of losing your funds. If the platform uncovers your true identity and your location, they could shut you out, even though your digital assets are in their custody.
The Security Features of The Platform
You are going to deposit your digital assets on this platform as collateral, hence, you should verify that it is safe and serious about keeping hackers at bay. Thus, you should do a little digging into the security details of the site. Questions you should as here include: Has the platform implemented multi-factor authentication, or does it have an insured hot wallet?
A margin trading facilitator, which has implemented multifactor identity verification systems on its website, provides added protection against hacks and cases of stolen identity. Websites with this system send OTP codes to users’ mobile phones for further identity verification or navigate the user to a page where he or she will undergo biometric verification. Therefore, it becomes difficult for unauthorized people to gain access to users’ accounts.
Likewise, exchange platforms, whether margin or normal trades enablers, ought to partner with licensed crypto custodians to ensure that lost assets are recoverable. By so doing, you can rest assured that hacks wouldn’t necessarily lead to the permanent loss of your crypto assets.
The Number of Leverages That the Platform Provides
Some crypto margin trading platforms are quite conservative when it comes to providing leverages. On the other hand, some offer leverages as high as 100x. In light of this, you should gauge your propensity to take risks, as well as the platform's offerings, before choosing the one that is the most suitable.
The Charges for Executing Margin Trades on The Platform
Unlike normal trading platforms, crypto margin trading exchanges utilize policies that allow them to implement charges like settlement fees, taker fees, and maker fees. It is imperative to compare the charges of two or more crypto margin trading platforms before deciding on the one that best suits you. While doing your research, check to see how these charges compound over time and how it stacks against your earnings on the run. We advise that you take your time when researching charges, as this might entail that you examine several data.
The User Experience of The Platform
User experience is an important detail to examine when looking to adopt a crypto margin platform. However, we don’t expect new traders to opt for this type of trading activity because of the risk involved. Instead, crypto margin trading is only suitable for advanced traders who know what they are doing. Regardless, the design of these platforms ought to improve navigation and make the process of accessing trading tools as simple as possible. It is also a plus when the platform has a mobile app. With this, it is easier to access the platforms’ trading services on the go.
The Number of Cryptocurrencies Supported on The Platform
Although bitcoin margin trading is the popular choice for traders, nonetheless, you might want to try out other cryptocurrencies and explore more ways to make more profits. Thus, we advise that you identify the coins available for crypto margin trading aligns with your trading interest. Also, remember to ascertain that the platform has enough tools in place to aid the entirety of the trading and analysis processes. Also, for people who frequently ask if the can short cryptocurrency, you should verify that the platform provides these services or if you are restricted to shorting bitcoin alone.
The Customer Service Culture of The Platform
Customer support is vital to crypto margin traders. And so, it is imperative to gauge the exchange or broker’s customer service models and how effective they are. Ensure that the platform has a functional feedback mechanism and that it can resolve complaints quickly. By so doing, you are certain that it is possible to fix any issue while utilizing the exchange’s services.
How Did Cryptolinks Compile Its List of Top Crypto Margin Trading Platforms?
Cryptolinks explored the workings of the crypto margin trading market and looked to pick platforms that have everything in place to ensure that their users have the best trading experience. To carry out this research, we measured these crypto margin trading exchanges against the aforementioned recommendations.
First, we researched the legality of the platforms in different locations around the world. Here, we discovered that a majority of crypto margin trades enablers had blacklisted US citizens and other countries with strict crypto regulatory frameworks. Only Kraken trading infrastructure was accessible to US citizens at the time of this review.Then, we checked the number cryptocurrencies that each exchange supports and the infrastructures made available to help users analyze and project signals. Thereafter, we ensured that the platform complied with security standards by adopting multifactor authentication and insuring users’ assets.
Furthermore, we gauged the customer service culture of each platform by assessing their feedback mechanisms and how long it takes them on average to resolve complaints. Our standard here is a 24/7 customer support system since the crypto market never takes a break. Next, we factored in the charges of each crypto margin exchange. It was clear that initiating margin trades is expensive, however, we believe that these platforms ought to set reasonable and competitive fees.
User experience also featured in our review, as we verified that each platform’s website came with a design that aids navigation. More importantly, they needed to offer mobile-friendly designs or mobile apps to encourage users to access their services through their smartphones.
After each exchange had undergone these rigorous review processes, we found 5 crypto margin trades enablers, which had shown a level of competence across all boards. As always, we expect you to check out our in-depth analysis of the workings of each platform on our list of best crypto margin exchanges before making a decision, as regards the one that best suits you.