Margin trading can make (or break) your crypto trading portfolio. When used appropriately, crypto margin trades can magnify your gains exponentially. Watch the value of your crypto portfolio MOOOOON when margin trading is applied. Not all crypto exchanges allow margin trading though. Only a select few have this feature. The author only margin trades crypto on Huobi Pro.

What is Crypto Margin Trade?

Crypto margin trade is to use borrowed coins from the exchange to trade a specific coin. Users will have to put up collateral for the loan for the cryptocurrency exchange to lend coins to the user.

Margin trading is often called a double-edged sword for its ability to magnify gains and losses.

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Case Study on Margin Trade

This case study is taken from here. Imagine a user called Hodler has initial capital of 100 USDT and loans 200 USDT from Huobi Pro. Hodler then converts the 300 USDT to BTC at the price of 6,078 USDT/BTC which gets Hodler 0.05 BTC.

In 12 days, assuming the price of BTC has surged to 8,487 USDT/BTC, the user may then sell the 0.05 BTC to 416 USDT.

After repaying the loan of 200 USDT as well as the interest for 12 days (~2.4 USDT), our savvy margin trader named Hodler would have made a profit of 113 USDT.

Based on the initial capital of 100 USDT before the margin trade, Hodler has now made a tidy 113% return on his invested capital.

Why Margin Trade on Huobi Pro?

Huobi Pro offers one of the lowest interest rates on borrowed coins, at a mere 0.1% a day. This fits the purpose of certain short-term trades where users would prefer to make an investment based on short-term technical analysis or on the expectation of some news that would affect the fundamental pricing of the coin.

Top 5 Tips on Margin Trade Returns Maximizing

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1. Understand the Margin Rules of the Lender

Imagine playing a game of backgammon or chess without knowing the rules well. How would that turn out? Same goes for margin trading. Different cryptocurrency exchanges will offer different margin rates, i.e. interest rates, maximum time for coin lending, when margin call will be made, how long is collateral good for. These are legitimate issues to grapple with before getting your feet wet in the world of crypto margin trade.

2. Buy Over Time

It would be an amateur mistake to purchase crypto on margin trades in one go. Instead, spread out your purchase into small amounts over some time. This is to minimize the exposure to one coin during a specified period of time such that you will not get a margin call. A margin call is a demand by the cryptocurrency exchange that the user has to deposit further cash to cover possible losses. When a user may not offer more collateral, his position will be closed out and all the paper losses be borne. The key to avoiding this is to buy small amounts on margin over time.

3. Time Your Buys

Have a crypto margin trade game plan and stick to it. That means users have to be clear as to why they are purchasing certain coin. Why now, not later? Does the user have information of a certain coin, business model, market trend or event related price moves? If so, then time your buy well and maximize the exposure to the coin by performing a crypto margin trade.

4. Speculation is Thy Enemy

Somewhat related to point 3; if users go into a crypto margin trade solely due to speculation in rather uninformed fashion, then the random walk of securities prices will be the downfall of the users’ portfolio. Stay away from speculation.

5. Have Backup Funding for Margin Calls

Do not put all the eggs in one basket. Have some back up funding (cash or securities) for crypto margin trading. When a user unfortunately gets it wrong and requires a margin call, a greater buffer of back up funding will be able to let the investor ride out the undesired outcome instead of being forced to liquidate due to lack of collateral. The way to protect against that is to have back up funding.

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Select a Cryptocurrency Exchange and Get Started with Crypto Margin Trades in Small Amounts

Following these 5 tips, one may start getting into crypto margin trading. Crypto margin trades extend beyond the realm of the 5 tips mentioned but with these 5 tips, the average user would have a greater advantage.

It all starts with choosing a good cryptocurrency exchange for margin trading. Best of luck and may the odds be ever in your favour.