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Margin Trading At A Glance

Adekunle Joshua

Binance is one of the most common cryptocurrency platforms to carry out margin trading. However, aside from Binance, there are other cryptocurrency platforms where you can carry out margin trading. While we mention some margin trading cryptocurrency platforms, we'll touch on things you should know about most. 

What is Margin Trading? 

Margin trading, commonly known as buying on margin, means borrowing money from a broker to purchase stocks. For better understanding, margin trading is borrowing from a broker and using the lent money to buy stocks. 

Although margin trading magnifies profits, it comes with a lot of risks. One of the risks of margin trading is being forced to lock in losses. By this, you can sell off your stocks when they fall, but you'll be unable to repurchase after stocks recover from losses. 

So not to scare you with so many risks involved, here are things you to know about margin trading

  • A collateral

As it is with traditional loans, you'll need collateral to take loans from a broker. These collaterals – often the value of assets, act as security deposits before approval of loans by brokers. Brokers like WazirX may require that you have a minimum of $2000 in your account before applying for loans. 

  • A credit Limit

A credit limit is an amount an investor can borrow, and it depends on the value of stock about to be purchased. For instance, your broker may offer a loan for 50% of the stock you wish to buy, meaning the broker will offer a $5000 loan for a $10000 stock.

  • An interest

Traditional loans come with interests, the same with merging trading. E.g., if you're carrying out WazirX or CoinDCX margin trading, you'll be paying interest based on the size of the loan. The bigger the loan, the smaller the interest rate and vice versa.