Margin trading with digital assets allows users to borrow money against their current funds to trade "on margin" on a trading platform like AscendEX. In other words, users can leverage their existing digital assets by borrowing funds to increase their buying power.
In most cases, a trading platform can extend some credit to the traders so they have greater capital for margin trading. This way, traders can open positions with higher leverage. The trading platform can mitigate the credit risk by having margin collateral requirements and limits in place.
For example, if a trader takes $25 and leverages 4:1 to borrow $75, they can buy $100 worth of Bitcoin. The only stipulation is that the trader has to pay back $75 plus fees no matter what happens. In order for trading platform to get the loaned amount back, there will be forced liquidation for the margin trade if the market moves drastically against the trader’s account with the positions hitting a price determined by the trading platform known as the liquidation price.
In margin trading traders can lose a significant amount up to the amount of collateral they put up when opening the position. This amount is based upon the liquidation price. The liquidation price is the price where the trading platform automatically closes a position, so the traders don’t' lose any of the money they were loaned and only loses their own money.
One benefit of margin trading is that traders can use it to maintain a smaller balance sheet on a trading platform at a time. If they have a large amount of digital assets and want to protect them, it makes sense to keep the bulk of their funds in an offline wallet and to keep only enough on the trading platform to trade on margin. Cost and utilization of capital is a key consideration for any margin trader.
Digital asset trading is risky, and margin trading is riskier. Unlike with regular trading, a trader can lose heavily because margin trading exacerbates both gains and losses due to swings in price. Furthermore, the more they leverage a trader uses, the more dramatic the earnings and losses.
For an in depth guide to margin trading rules on Ascendex start HERE.
Now that readers are familiar with margin trading basics, they can get started trading HERE.