Of the dozens of trading tools that exist on the crypto exchanges, among them, ‘margin” is one of the most requested ones. Margin trading is a way of utilizing funds by a third party to perform asset transactions.
Though margin trading is not new to the crypto ecosystem, it is becoming increasingly prevalent on cryptocurrency exchange platforms. In the dynamic world of crypto, margin trading is the most powerful tool that allows traders to adjust their positions by borrowing funds, often called leverage. This method provides opportunities for high profits.
Margin trading has started to grab the attention of users. So it is the greatest opportunity for entrepreneurs to start a crypto exchange business. If you are unaware of margin trading, then this article is for you. Here, let us explore what margin trading is and the reasons to integrate margin trading into a cryptocurrency exchange platform.
What is margin trading?
Margin trading is a technique of leveraging borrowed funds to adjust your positions in the crypto market. Instead of using your own capital for trading, you can also borrow funds to increase the size of your market position. This practice helps you to generate high profits.
For example, if you have $1000, and you sense that the price of Bitcoin is going to rise. Now, with traditional trading methods, you can buy $1,000 worth of BTC with your money. Suppose if the price increases by 10% then your profit will be $100.
On the other hand, with margin trading, you can borrow $9000 ( 10 times your investment). Now you have $10,000 worth of BTC. If the BTC price rises by 10%, then your profit will not be just $100, it will be $1000. – thus giving 100% profit on your invested capital. This example explains to you the potential magnified profit via margin trading.
The above-said example highlights one of the primary benefits of margin trading: the potential to amplify your returns. By leveraging borrowed funds, traders can make their own price movements, thus leading to high profits.
Moreover, margin trading enables traders to use long and short positions. Using these positions, traders can gain as much profit from falling prices as effectively as they can from rising ones, improving the versatility of their trading strategies.
This way, margin trading opens up new ways for traders to increase their profits in both bearish and bullish market conditions. Likewise, there are numerous reasons and benefits for integrating margin trading into a cryptocurrency exchange. Let’s see about them deeply
3 Major Reasons Why You Should Try Margin Trading
- Exotic Pairs – Margin trading provides access to exotic trading pairs. This means 2 cryptocurrencies are paired together. For example, BTC/ETH. Before buying/selling, traders can speculate on the performance of the two cryptocurrencies. With cryptocurrency exchange, traders trade the pair with leverage of up to 10X.
- Multi-Assets Collateral – The specialty of margin trading is that it allows users to invest in multiple assets as collateral to borrow leverage. For example, in cryptocurrency exchange, instead of allocating BTC to BTC-based margin trade, traders can use any type of cryptocurrency, like BUSD, BTC, ETH, USDT, etc to denominate their collateral. Allocating multiple assets as collateral enables traders to operate with more flexibility while opening trades.
- Arbitrage – Margin traders use arbitrage if the funding rate on future pairs is volatile. For example, if the BTC/USDT perpetual funding rate is low, then users can use margin trading to short the trade with BTC/USDT while allowing them to enter long futures trades in BTC/USDT perpetual to make a profit with low risk.
Cryptocurrency exchange with margin trading – What do the platform owners gain?
Margin trading is not as complicated as it sounds. As a matter of fact, margin trading provides the exchange an option to cut the competition and place them unique in the crypto market. However, this only not the key reason to integrate margin trading into the cryptocurrency exchange platform. Here are a few more reasons:
Higher trading volume
It is a well-known fact that cryptocurrency is a volatile market. Whenever the market is bearish, the crypto exchange’s trading volume falls drastically, because this is the time traders wish to hold the assets on the exchange. Whereas on a margin trading exchange, the traders can simply make big profits in both bear and bull markets. By leveraging the right margin trading strategies, traders can make a profit even in a bearish market. Thus, traders in crypto exchanges integrated with margin trading can always enjoy healthy trading volumes.
Reduced threat of hacking
In leveraged trading, the capital held by the exchange is less than that of the actual trade. Thus, it reduces the threats given by the exchange hacks.
Amplified gains
Margin trading enables traders to conduct complex and active trading strategies. This amplifies the trader’s gains and also indirectly increases the profit of the margin trading crypto exchange as compared to the spot trading crypto exchange.
Fees and interest
The exchange will not provide margin trading services free of charge. Whenever a trader opens a leveraged position, he has to pay interest on the amount he borrowed from the platform.
Different margins
If a trader wishes to begin margin trading on an exchange, then he has to deposit an amount initially. This deposit is used to open a position. To maintain this position, the traders have to hold the margin amount in their account.
Collateral
As a margin trading exchange, traders have to deposit a minimum amount of capital. This capital is utilized as collateral, and it acts as a safety for the exchange.
Leverage
Different exchanges provide different amounts of leverage. Some platforms provide 200X leverage, while others set the limit as 50X or 20X. The amount you plan to leverage for your trader must be strategized to maximize your profits, stay in competition, and minimize losses.
Summing up
When you plan to operate a cryptocurrency exchange, integrating margin trading into your platform is not a necessity but a sort of imperative. If you integrate margin trading into your cryptocurrency exchange platform, not only do your users gain profit, but you too will gain ROI. For this profit, what you have to do is hand-shake with a trustworthy margin trading cryptocurrency exchange development company. Who will give you the exact software you are looking for.
Zodeak is the top cryptocurrency exchange development company globally, providing a crypto exchange platform underpinned with all necessary features, from margin trading to enhanced order types, and more. Connect with us immediately to start your journey in the crypto business!
