The Most Simple Guide to Bitcoin Margin & Leverage Trading

Bitcoin has hit an all-time high of over $41,000 in January 2021. The huge volatility of Bitcoin’s price has created a lot of opportunities for investors to gain profit from BTC’s volatility.

Amid the BTC hype, Bitcoin derivatives were created to meet the needs of investors to trade BTC in a more efficient way. One of the prominent features of trading Bitcoin futures is that the transaction is settled in cash, and there is no actual Bitcoin involved in the transaction.

BTCC is one of the leading and innovativeBitcoin and Ethereum futures trading platforms in the world. The exchange has launched the world’s first physically-delivered perpetual contract, which means investors can have the option of having their futures contract to be settled in physical Bitcoin.

To maximize the potential return, many investors choose to use leverage, which is an investment tool that allows investors to increase their exposure to Bitcoin’s volatility with relatively small capital.

What is Leverage

Leverage is a financial instrument that allows traders to buy or sell any trading instrument that is larger than their deposit amount. Leverage is considered a double-edged sword, which not only amplifies your gain but also amplifies the loss as well.

For example, John deposits $1,000 in an exchange that offers leverage of 1:6, which means John is able to open a $6,000 worth of buy or sell position. If there is a 20% profit from John’s investment, he will earn $1,200, and his account balance will have $2,200. However, if the market goes against his will with a 5% loss instead, John will lose $1,200 as a result. If John didn’t use leverage in this case, he would only lose $200, which is 20% of his total account balance.

Leverage level plays an important role in managing your risk as well. For example, both Terry and Alex have $5,000 each on their account balance. When the price of Bitcoin is trading at $10,000, Terry wants to get the biggest exposure to Bitcoin’s volatility, and he decides to take advantage of the maximum leverage of 50:1 and open a buy position worth $250,000. Whereas Alex is risk-averse, and he buys a position with the leverage of 3:1 on the same trade as Terry, which is equivalent to a buy position worth $15,000.

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Continuing with the previous example, if the BTC price falls to $9,950, the amount that both Terry and Alex will lose depends on the leverage level they use. In this case, Terry will lose $2,500, 50% of his total account balance. While Alex only loses 5% of his total account balance, which is $250.

Bitcoin Margin Trading

To open a buy or sell position in margin trading, a certain portion of the fund from your account will be reserved as collateral for the particular position that you trade. This specified portion of the fund is known as margin.

Maintenance margin is the amount that investors need to maintain to avoid liquidation. A margin call will be triggered if the margin account has dropped below the maintenance margin level, and investors will get a call from the broker to fill the fund up to its minimum level.

For example, in an exchange that is able to offer 20:1 leverage with a 5% margin, which means to open a $10,000 worth of buy and sell a position, you are required to have a deposit of at least $500 in your account.

Risk of Margin and Leverage Trading

Margin and leverage trading can be risky, and it is important for investors to do their own research and choose the appropriate leverage level that suits their risk appetite. BTCC provides 10x, 20x, 50x, 100x and 150x leverage for traders to choose based on their need.

Stop-loss order is one of the important ways for investors to safeguard their assets and minimize the loss by setting up a specified price level for the position to close automatically once that price level is met.

BTCC takes negative balance protection seriously, where the ten years old exchange has a policy in place to cover user’s 100% negative balance rather than let all profiting users share the losses. Negative balance protection means the number of money traders lose is no more than the money they deposit.

 

Conclusion

Bitcoin margin and leverage trading can serve as useful investment tools if you master and execute correctly. Choosing a safe and reliable exchange is also an important factor for investors to take into account.

Launched in 2011, BTCC operated for more than ten years without any security incident. The exchange offers diverse crypto derivative products, offering daily contracts, weekly contracts, and perpetual contracts. The trading fees at BTCC are one of the lowest in the industry. For instance, BTCC charged zero opening fees for each transaction and charged 0.06% for daily and weekly contracts.

Go for a free account on BTCC today and try your first bitcoin leverage trading. New users who make their first deposit at BTCC can grab up to 2000 USDT trading bonuses.

In addition to the English market, BTCC is also available in Korean (비트코인 선물거래), Japanese (ビットコイン先物契約), and Vietnamese (Hợp đồng tương lai Bitcoin).

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