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Margin trading is a way to increase the size of a trade using borrowed funds. This can be attractive for traders with limited capital as it allows for potentially higher profits, but it also comes with high risks.
What is margin trading?
Margin trading allows traders to borrow money from the exchange (or other users) to open a position larger than their own capital. For example, if you have $100 and use 5x leverage, you can open a position worth $500.
Risks of margin trading
With leverage, profits can be significantly increased, but there is also the risk of losing more than your own capital. If the price of the cryptocurrency moves against you, losses can accumulate quickly.
Example: If you opened a position worth $500 with 5x leverage and the price of the cryptocurrency dropped by 10%, your loss would be 50% of your deposit ($100).
When to use margin trading?
Attention to risks: If you have a small capital, margin trading can be too risky. If you decide to try it, start with minimal volumes and choose the lowest possible leverage.
Technical analysis: Always use technical analysis to predict market movements and always set stop-losses to limit losses.
Recommendations for beginners:
Start with small positions to minimize risks.
Do not use leverage higher than 3x, especially in volatile markets.
Understanding liquidation: if your deposit does not cover losses, your position will be liquidated, and you will lose all invested capital.
