Margin trading is a method of trading assets using funds provided by a third party. When compared to regular trading accounts, margin accounts allow traders to access greater sums of capital, allowing them to leverage their positions. Margin trading amplifies trading results so that traders are able to realize larger profits on successful trades.
Leverage is the ratio between a trader’s position size and the equity used as collateral for the position.
For instance, 100x (or 100:1) leverage will increase a $500 Bitcoin position to be as big and as profitable as a $50,000 Bitcoin position.
Leverage ratios in the cryptocurrency markets tend to range from 2x (2:1) to up to 100x (100:1).
Margin trading with leverage allows traders to open both long and short positions, meaning they can profit from both rising and falling markets.
To keep the leveraged positions open, traders are required to hold a percentage of the value of the position on the exchange.
If you cannot fulfill your maintenance requirement, you will be liquidated and your maintenance margin will be lost.
Liquidation price is the price at which your position balance is completely wiped out. The higher the leverage, the more funds you borrow, and the more risk you take at getting liquidated.
Isolated Vs Cross Margin
Isolated Margin
The margin assigned to a position is restricted to a certain amount. If the margin falls below the Maintenance Margin level, the position is liquidated. However, you can add and remove margin as you want.
Cross margin
All available funds in an account’s balance will be made available for an open position. When needed, a position will draw more margin from the total account balance to avoid liquidation.