Understanding BitMEX Margin Trading and Its Benefits
Margin trading has become a
tedious concept among crypto traders these days. However, if done properly
after the right analysis and through a reliable crypto exchange, trading with
margin can deliver high returns. This kind of trading poses higher risks than
regular trading due to the volatility of crypto assets. But it allows you to achieve higher potential
profits by adding more risks to your trade. Similar to margin trading in the traditional
market, the traders borrow funds from the third party as margin.
It is always worth
remembering that trading with leverage is profitable for professional traders,
and not for beginners. Despite offering large potential gains, this kind of
trading is quite risky and it’s important for the traders to trade this kind of
trading carefully so as to avoid losses.
BitMEX is one such trading
platform gaining huge popularity in the crypto space today. This trading
platform offers plenty of trading features to the investors and helping them to
stay successful in the volatile cryptocurrency market.The BitMEX exchange lets
crypto traders magnify their trades by offering leverage upto 100x.
Profiting
in a failing market
One of the key benefits of
margin trading is that it allows you to turn a bearish market into a profitable
trade.
How?
Let’s take a basic example for this:
Suppose you owned 1 BTC in
Jan 2020, when its value was on peak, say above $20000.
Expecting the market to fail
or crash down in sometime, you sold that BTC at this higher price point with an
aim to buy back at a much lower price.
Then you decided back to buy
BTC in July 2020, when the market was worth $8000. Here you could have made a
profit of $12,000 minus the transaction fee.
And, when you add leverage
trading, this potential profit could have much higher than this. Suppose, you
have traded with the leverage of 5:1, your profit could have been 5 times
higher.
Trading on BitMEX is quite
different from other platforms as these platforms allow you to directly trade
the coins in your account meaning you directly buy or sell BTC while you
execute orders. But on BitMEX exchange, you open a position wherever you think
the price will go on, you will gain the price difference as your profits, in
case the trading goes successful. You are buying contracts for long or short
trades and every trade must be closed at some point, i.e. your target.
How
does BitMEX margin trading work?
Let’s say, the value of
Bitcoin (BTC) is 50K USDT and you are using a 10x margin on the BitMEX
margin trading tab. You have 1 BTC, but with margin trading, you can
buy 10 BTC for the cost of 1 BTC. Here the exchange lends you the remaining
amount by using your 50K USDT as collateral.
So, if the price of BTC
increases by 10%, then you secure a profit of 10% on ten BTC. Doesn’t it seem
good? But, it’s true. However, if the price of BTC slips down by 10%, you will
lose all your collateral.
BitMEX is one of the most
advanced trading platforms for cryptocurrency trading considering its high
liquidity levels and great performance.
This platform offers leverage in the range of 1x to 100x to the users,
and the leverage of 100x is available only for some specific assets. Apart from
this, BitMEX offers several features to its traders including Limit order,
market order, stop-market order, Trailing stop buy, Trailing stop sell, Stop-limit
order, Take profit market order, and more.
Let’s
understand leverage with another example:
Trading
without leverage:
You
have $1,000 in your trading account and you want to buy ETH.
Current
ETH price per coin: $1.00
You
buy 1,000 coins, so your investment is $1,000. If the ETH price goes up by 5%,
you can sell out of your position at a price of $1.05 per coin:
Return:
1,000 coins x $1.05 = $1,050
Profit
$50 (or 5%)
Trading
with leverage:
If
you buy ETH using 20x leverage, then you could get exposure to 20 times as many
shares. Now you can buy 20,000 ETH, but only commit 5% of the money (called
margin deposit or initial margin):
Current
price ETH: $1.00
Actual
Cost (margin) $1,000
Exposure
$20,000
If
the ETH price goes up by 5%, you can sell out of your position at a price of
$1.05 per coin:
Return:
20,000 coins x $1.05 = $21,000
Profit
$1,000 (or 100% of your $1,000 investment)
Magnified profits and losses
You
can see that using leverage is a great way to magnify your profits, but it can
also magnify your losses. As you can see from the example above, if the ETH
price had declined by 5% instead of rising, then your whole $1,000 account
would have been wiped out.
Benefits
of BitMEX margin trading
But, do you know why expert
traders prefer BitMEX margin trading? Let’s have a look at the reasons:
- User-friendly platform
- Low fees
- Easy to handle user interface
- Supports all the advanced and professional
order types
- The trading engine works smartly without any
glitches
Conclusion
Comments