Understanding BitMEX Margin Trading and Its Benefits

by Trailing Crypto cryptocurrency experts

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

For the expert crypto traders, trading with leverage on BitMEX exchange is the best option as it allows them to make money from the uptrends as well as downtrends in the market.  If you want to use margin trading on BitMEX, considering signals from third-party platforms like TrailingCrypto will be the better and most accurate option. 

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Created on May 2nd 2022 10:55. Viewed 186 times.

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