December 4, 2020

CEX.IO company blog | Leveraged Trading: Pros and Cons

Each of us wants to get as much as possible, and with less investment.And that way, really, Truth, with some nuances, which you need to understand and be sure to take into account in the work.Let's start with the logical - explaining what margin trading is, and why do you even need to know about its benefits?

Margin trading is a unique service that helps to make money on price movements, opening access to management of a large position, using a small deposit.

Margin trading is actively used by traders in traditional markets (currency, stock and commodity).At the same time, part of the trading platforms of the traditional market has expanded the range of services, including cryptocurrencies in its line.On the other hand, cryptocurrency platforms have also started to provide margin trading to create a more complete set of trading tools for their customers.For example, CEX. IO recently provided users in Europe with a platform for margin trading of cryptocurrencies based on contracts for the difference in prices of CEX. IO Broker (also known as CEXBro).

To understand how this works in the cryptocurrency world, consider some aspects of the practice of margin trading.

CEX.IO company blog | Leveraged Trading: Pros and Cons


Benefits:

Leveraged trading allows you to trade with more capital than you actually have on your balance sheet
For example, you have 500 USDT on your account and havethe ability to choose a leverage. If you choose 1: 2 leverage, then you can open a deal for 1000 USDT, and with a leverage of 1:10, the deal amount will increase to 5000. Moreover, trading with leverage allows you to use only a part of your own coins to open positions, thereby partially saving custom balance.

Trading on multicurrency accounts
Several platforms, including CEX.IO Broker, allow you to open multi-currency accounts. The main purpose of such an account is to choose the main currency (from those offered by the exchange) and trade in any pairs available on the platform. For example, you can have an account and balance in BTC, and trade with the ETH / USD pair. This method of trading allows you to work with a number of different assets, instead of being limited to one or two (which are on the balance sheet).

The ability to quickly complete transactions without spending time on transfers
Many users choose to share theircryptocurrency portfolio and not keep all funds in one place. Some keep large amounts of cryptocurrencies only in a cold wallet. Under normal circumstances, if you need to open a position for a large amount, you will have to withdraw funds from the cold wallet and fund your trading account. However, if you need to do this urgently, and you do not have time for extra transactions, the margin leverage will help you trade even with a small amount of the deposit.

Risks:

Profit potential equal to loss potential
It is important to understand that a high level of leveragedoes not guarantee huge profits at all. Along with the opportunity to increase profits, there is also the risk of losses. When trading with leverage, it is necessary to analyze the current situation very carefully so that market movements do not play a cruel joke. As in the case of making a profit, the use of margin increases the potential losses, which (if calculated incorrectly) may even exceed the amount of the user's personal funds in an open position.

Passive investing has no place here (the downside of dynamism)
Tactic "open a deal and get distracted"- not the best choice when working with borrowed funds for trading. You should control the movements in the market in order to have time to limit your losses, and think over a new trading plan. It is important to soberly assess not only the potential profit, but also the possible loss. Maximum leverage margin positions can easily lead to serious losses that must be covered without fail.

Read the continuation in the next posts.

Do you have any experience with margin trading? You may have a different list of the biggest pros and cons of margin trading. We invite you to discuss in the comments!

Our CEX.IO Broker platform also provides ample opportunities for margin trading - follow the link and start trading now!