First let’s explain what margin trading is. Margin trading is a loan from your broker or online broker service which enables you to leverage your capital to purchase a larger position than the capital of the trade. Leverage is the ratio at which you borrow against your capital to trade with. For example a 50:1 (50 to 1) leveraged trade means that for every $1 of your capital. The broker will let you use $50. If the price of the trade goes up by 10% with no leverage you would receive 0.10c profit from your initial $1 investment. But if you use a 50:1 leverage and your position went up 10% you would receive $5.00. This is all well and good but if your position lost 10% your investment would be gone and you would be liquidated with an account balance of -$4.00.
Let’s say the latter happens. This is called liquidation. When entering a margined position a liquidation sell off price is agreed upon either depending on how much you are willing to risk or the total sum of your given trade. Once the price hits liquidation it will automatically sell that position to recoup losses or leverage and loans. Hence why you end up with minus $4.00 in our example above.
Now that we have delved into the basics of margin trading. How do we do this using Bitcoin? Well there are a fair few exchanges that allow margin trading for example Bitfinex and Bitmex which are two of the more popular margin or leverage trading exchanges. They allow you to deposit Bitcoin then use that Bitcoin to enter margin trades on certain select cryptocurrencies, including Bitcoin. Once you have deposited your Bitcoin into your deposit address on the site, you can then transfer it to your margin wallet and select the risk ratio or leverage ratio you desire then begin to trade. Professional traders recommend using stop losses in order to not be liquidated and reduce risk and losses. You can sell out at anytime or setup an automatic sell at a certain profit price.