Crypto enthusiasts over the years have reveled in margin trading cryptocurrency. The margin trading crypto exchanges enable them to borrow additional funds and open larger trades. Efficient and risk-controlled margin trading can amplify your profits for a set capital. Other than the opportunity to trade on borrowed money, traders take a long view of the asset under consideration and short sell it.
Here is everything that you ought to know about margin trading crypto in India.
Intro to margin trading cryptocurrency
Margin trading is a trading strategy that involves investing assets borrowed from a broker(third-party).
It allows the trader access to more outstanding sums of capital, allowing them to leverage their positions. However, margin trading cryptocurrency is also risky, as an unlucky trade makes the trader liable for the complete loss.
Margin trading cryptocurrency boosts trading results so that traders can receive more profits on successful trades. It is prevalent in low-volatility markets, especially the international Forex market, since price movements are easily predicted. Stock, commodity, and cryptocurrency markets also have margin trading options in India.
Margin trading has higher risks in the matters of cryptocurrencies. Owing to the high levels of volatility in these markets, cryptocurrency margin traders should be cautious, and crypto beginners – watch before you jump in.
Interpreting charts, recognizing trends, and determining entry and exit points only help to anticipate risks and trade better more effectively, not eliminate the risks.
Before you leverage cryptocurrency trades, acquire an intense understanding of technical analysis and spot trading experience.
Definition, purpose, usage
Crypto margin trading might overwhelm at the beginning. As said above, the concept allows traders to acquire capital and access enhanced buying power more than their existing account balance.
A trader provides the exchange platform some capital in exchange for another type of capital and profits from it.
Initially, a trader must give a deposit to open a position, an initial margin. He must keep a certain amount of capital in their account to maintain the position.
In cryptocurrency exchange or lending platforms, the capital you deposit is held as collateral by the platform. The amount you’re able to leverage for margin trading depends on the margin trading rules imposed by the platform you trade with and the initial deposit.
Terms to know:
The funds you hold in your margin account assure the broker that you can pay off your debt.
It is a demand from your broker to add more funds to your margin account—and in case you fail, they can forcibly sell your crypto positions.
This conditional trade requires you to set a stop, start, limit the trade’s target price, and a timeframe where the order is executable. Your trade is filled when you want. If the price goes up or down, depending on your preferences, the trade is canceled.
Similar to a stop-limit, it is a handy tool for leverage trading. A stop-loss order lets you fix the limit till which you can take a loss. If you fix it to 5% and the asset’s price falls to that amount or more, it is sold immediately, so you incur only a 5% loss.
This is a type of stop-loss order that can lock in profits. This is beneficial for anyone who wants to let emotion take a backseat when deciding when to exit a position.
Margin vs. leverage
Margin is the percentage of the total order that the trader has to commit. Margin refers to the loan your margin trading crypto exchange grants you to place larger trades. The funds collateralize this loan in your account, and you will need to pay it back with interest.
Leverage is the borrowed money the trader uses to make up for the difference between your margin and the order total.
Traders use margin to create leverage-the increased buying power that allows you to open more prominent positions than the funds in your account would allow. Leverage is expressed as a ratio, such as 2:1 or 5:1.
Pros and cons
The most significant advantage of crypto margin trading is its profit potential.
Let’s say you go for 100x leverage. If your margin is 10 BTC and the trade is victorious, your profit will be like you invested 1000 BTC.
Most margin trading platforms will let you choose the leverage amount you’re most comfortable with and work from there. The trader gets to decide what leverage you want to use. Margin trading lets traders open many positions with small investment capital.
Having a margin account makes it easier for traders to open positions without shifting large sums of money to their accounts.
The biggest drawback is if your trade is unsuccessful and you lose funds, you still have to pay your broker back. If the loss is a lot to take in, you risk dissipating everything you have.
Here the stop-loss orders come into play—knowing how to use the tools at your disposal is of prime concern. Unlike regular spot trading, margin trading carries with it the odds of losses that exceed a trader’s initial investment. Hence it is regarded as a high-risk trading method. Depending on the amount of leverage involved in a trade, even a tiny drop in the market price may cause substantial losses for traders.
What to keep in mind
Unquestionably, margin trading is a valuable tool for those looking to magnify the profits from successful trades.
If used properly, the leveraged trading presented by margin accounts can assist in both profitability and portfolio diversification.
When margin trading on WazirX, there may be a fee or interest on the borrowed amount- don’t worry, you can pay it using WRX tokens.
How To Invest In Cryptocurrency?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is considered the procedure of verifying and adding transactions to the blockchain public ledger. Another option is via cryptocurrency exchanges. Exchanges generate money by collecting transaction fees, but there are alternative websites where you can interact directly with other users who want to trade cryptocurrencies.
Is Cryptocurrency Banned In India?
No, cryptocurrency is not banned in India. India has seen its ups and downs in the crypto sector concerning its legal status. The Reserve Bank of India (RBI) issued a circular in April 2018 advising all organizations under its jurisdiction not to trade in virtual currencies or provide services to assist anyone in dealing with or settling them. A government committee proposed outlawing all private cryptocurrencies in mid-2019, with up to ten years in prison and severe penalties for anyone dealing in digital currency. The Supreme Court overruled the RBI's circular in March 2020, allowing banks to undertake cryptocurrency transactions from dealers and exchanges.
How To Invest In Cryptocurrency In India?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is the process of verifying and adding transactions between users to the blockchain public ledger. Purchasing cryptocurrency in India is a straightforward procedure where investors simply participate by registering with a crypto exchange such as WazirX. After registering for an account, citizens can trade multiple cryptocurrencies, store cryptocurrency in wallets, and more.
What Are The Best Cryptocurrencies To Invest In?
The best cryptocurrencies to invest in would be the ones you study and analyze in detail. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, and many altcoins such as Tron, Ripple, Litecoin, etc.
Is Cryptocurrency Safe To Invest In?
Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.
Is Ethereum Safe To Invest?
The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.
Is Pi Cryptocurrency Safe?
Pi Network (PI) is the newest digital token to catch the cryptocurrency community's interest, even before it has wholly debuted. Some users see it as a chance to get engaged in a cryptocurrency from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.
What Is Virtual Currency?
Virtual currency is a type of uncontrolled digital currency that can only be used online. It is exclusively stored and transacted using designated software, mobile or computer applications, or unique digital wallets, and all transactions are conducted through secure, dedicated networks. Because digital currency is just currency issued by a bank in digital form, virtual currency is not the same as a digital currency. Virtual currency, unlike ordinary money, is based on a trust structure and cannot be issued by a central bank or other banking regulatory organization.
Can I Invest In Cryptocurrency?
Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.
Are Cryptocurrencies Legal In India?
In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.