If you want to start investing in the crypto market, but don’t have enough liquidity to make the plays that you need, you should start asking yourself What is Margin Trading Crypto. Because when you find out what is margin trading crypto, you can really start to invest heavily in the crypto market
Since you are asking what is margin trading crypto, you might not be aware that it is a high risk activity. So now you can consider yourself informed and notified. And since you are still reading here, let’s get into it and explain what is margin trading crypto.
In traditional investing, buying on the margin means you are borrowing money from your broker in order to buy securities. The easiest way to understand this is to compare it to a mortgage. Let’s say you put a $10,000 down payment on a $100,000 house, and mortgage the remaining $90,000. If the value of the house increases to $120,000, even though the house has increased in value by 20%, you’ve made a 200% profit on your investment, since you only invested $10,000. You paid some interest on your mortgage, but everything worked out.
Buying on the margin works the same way. So if you want to know what is margin trading crypto, essentially it is when you borrow money from your broker so you can invest in some form of cryptocurrency.
If you want to know what is margin trading crypto, you’re probably also interested in knowing what happens if the coins you are investing in increase in value, decrease in value, or stay the same.
So, let’s say want to invest in Ripple (XRP). It’s been in the news lately, and looks like it could be a good investment. Ripple is currently trading at around 50¢, but you believe it could go up to $500. You want to buy 10,000 shares of Ripple, which would cost you about $5,000, but you only have $500 available to invest. So you contact your broker on Poloniex, one of the coin exchanges that allows margin trading and tell him you want to trade on the margin. You kick in your $500, and are the proud owner of 10,000 Ripple (XRP) coins.
What is Margin Trading Crypto – Good Times
Everything you thought would happen with Ripple came true. Ripple hit $5 within a few days of your investment. Your 10,000 shares are now worth $50,000. You cash out, repay your broker $4,500 plus some interest, and you basically earned $45,000 on a $500 investment, an increase of 8900%
What is Margin Trading Crypto – OK Times
Ripple didn’t really move. A few weeks have passed, and Ripple is still sitting at 50¢. So you sell your shares, and repay your loan plus interest. It’s not what you were hoping for, but you took your chance and other than paying back come interest, you pretty much stayed in the same place.
What is Margin Trading Crypto – Bad Times
All your biggest fears came true. Ripple started to drop in value, and fell all the way down to 2¢ within a few days of your investment. Your 10,000 shares are now worth $200. You owe your broker $4,500 plus some interest, and you basically lost $4,700 on a $500 investment, an decrease of 1040%.
So now you know what is margin trading crypto. Good luck in all your crypto investments.