Margin Trading Strategies: A Beginner's Guide (2024)

Have you been trying to decode margin trading? Great – we are here to help! Margin trading is an efficient way to trade crypto. But it requires some knowledge and caution. Let’s have a look at some margin trading strategies that you can use.

Margin Trading Strategies – Where to Start?

Let’s take a step back. In order to start margin trading, you first need to understand some essential concepts.

Understanding Trading

Trading means buying and selling assets with the aim of making a profit. Institutional trading looks at buying and selling stock, shares, and currencies. Cryptocurrency trading involves buying and selling digital assets. Although the tradable assets differ, the purpose remains the same in both worlds. So, trading aims at returning a profit.

What is Margin Trading?

Margin trading is a practice that allows trading assets by using additional funds provided by a third party. Margin accounts give traders access to more capital. This means that traders can leverage their positions. In essence, margin trading strengthens trading positions and traders can realize larger gains on successful trades.

As mentioned above, traditional markets fund margins by using an investment broker. So, who provides these funds in the crypto market? This is usually done by other traders. Their motivation is to earn interest on the funds they borrow for margins. In some cases, the exchange is the party that provides margin funds to traders.

Check out our comprehensive guide onWhat is Margin Tradingto find out more!

Margin Trading Strategies – Short vs Long

You are now up to date with the idea of margin trading. So, what to do next? Distinguishing between long and short term trading is a starting point for your strategy. But what does that mean?

Short position

Short position means betting that the price movement will decrease. In more detail, traders use a short position when they predict that the market is going to move down. In other words, you are betting against an asset instead of for it.

Long position

Yes, you guessed it. Long position is essentially the opposite of short.

A long position means betting that the price movement will increase. Traders use a long position when they believe that the market will experience an increase. This way, they bet that the price of a certain asset or the entire market will continue climbing. They make profits from the price appreciation and sell at a later date.

Using Leverage to Long or Short Crypto

Long and short positions can be used with or without leverage. Margin trading a short position means that the trader borrows funds when the market is in decline. The funds amplify the trade. If the market does really decline, the asset prices drop, i.e., the trader profits.

In case of longing, traders profit from price appreciation and sell at a later date.

Quick Tips on Margin Trading Strategies

It’s time we got more practical! Below, you’ll find strategic tips to consider when margin trading.

Keep a cool head

It is important to stay rational when margin trading. Don’t enter into trades that you are not fully prepared for. Use technical analysis andtrading indicatorsinstead of your emotions and adrenaline.

Don’t rush into trades

Plan your trades ahead of time instead of being spontaneous. Also, try to have some patience when margin trading. Calculating the right entry moment will give you an advantage. Especially, when compared to jumping in head first.

Set up limit orders

Limit orderslet you buy or sell crypto at a specified price or better. For buy limit orders, the order will be executed only at the limit price or a lower one. On the other hand, sell limit orders will be executed only at the limit price or a higher one. Limit orders help you mitigate risks when margin trading.

Start out slow

Margin trading offers much higher potential gains than regular trading. Yet, higher profits come with higher risk. Consider starting out with a smaller leverage, such as 1x or 2x, before going all in. This approach decreases the chances of automaticliquidation.

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