Margin trading allows traders to access greater sums of capital, enabling them to leverage their position. This explains why investors flock to cryptoexchange with margin trading. Exchanges facilitate margin trading by lending traders the cash to buy cryptocurrencies. All margin positions need to be closed before the culmination of the settlement.
Conventionally a part of stock trading, margin trading later became popular among crypto traders as well. Well aware of what the traders were expecting and eager to pull more towards their exchanges, the owners extended their repertoire to margin trading. Whether they had decided to buy white label margin trading exchange or were building one from scratch, they made sure the facility was available to their traders.
How margin trading works
A trader interested in margin trading needs to open a margin account with the exchange. They are required to pay an initial amount to the exchange as the Minimum Margin. The purpose of Minimum Margin is to protect the exchange from losses in case the trade doesn’t progress as the trader had envisioned.
Once the account is opened, the investor needs to deposit the Initial Margin with the exchange. This amount is determined by the exchange and it is a set percentage of the total traded value. Traders have to mandatorily maintain the Minimum Margin. Some days can be highly volatile and this amount will serve as a shock observer on such days.
Brace up for risks along with profits
Margin trading is usually performed by experienced traders and the complexity involved in the process can make new traders feel overwhelmed. However, regardless of whether you are a new trader or an experienced trader, you should have a clear idea of your risk appetite and plan your trades accordingly.
In stock trading, the leveraged ratio may range from 50:1 to 200:1. In crypto markets, in contrast, the ratio varies from 2:1 to 100:1. The term ‘x’ is used by the traders to denote their leverage percentage.
Trading with long and short positions
Most traders understand the long position as it resembles a natural way of profit-making. Traders go for a long position when they expect the cryptocurrency price to go up. If the opposite happens, meaning the price drops, the trader will need to pay more digital money to the exchange for maintaining the minimum balance amount. If the trader fails to maintain the minimum balance, the exchange would dispose of the trader’s holding to cover the possible losses.
Margin trading – a potent tool to pull traders
As the number of crypto exchanges is propping up, the competition is also increasing. You have to provide your traders with more reasons to come to your exchange and not go to your competitors. Margin trading can be a good enough reason to lure traders to your exchange. After all, who doesn’t want to garner more profits while rolling out fewer amounts from their pockets?
Almost all popular crypto exchanges today are offering the facility of margin trading to their users, and why won’t they, when margin trading helps them pull in more users and enhance their revenues, thanks to the commissions they are earning.
Owing to margin trading, exchanges can reuse the funds that are lying idle with them. While traders are able to take home more than what they had hoped for, revenues for the exchanges also go up.
The setup of margin trading is such that exchanges won’t lose their money even in case a trader makes a wrong decision.
How can exchanges assist traders in margin trading
One way you can help traders minimize losses is by providing them with complex order types. This enables traders to implement proven risk management strategies. Advanced conditional orders have been devised on the concepts of limit, stop, and stop limit. Traders can use these orders to build additional criteria for trade, thus limiting the risk.
You can consider providing your traders with a support system to use fiat funds for margin trading in cryptocurrencies. The availability of fiat funds helps traders arrange their finances. Few exchanges allow traders to use fiat funds and if you do, you will be able to take a lead on them.
Margin trading, which has been quite popular in stock exchanges, has quickly become popular in crypto trading as well. Introducing margin trading on your exchange will allow you as well as your traders to ramp up profits. Sure, there are associated risks as well but you can provide traders with complex order types to reduce risks. The system of margin trading is such that exchanges can never be at loss.
If you are planning to buy margin trading exchange, Antier Solutions can help. We provide a white label margin trading exchange integrated with market-leading features and a robust risk management system. At the same time, we specialize in building a custom margin trading exchange from scratch.
Schedule a free demo of our white label margin trading exchange or connect with our subject matter experts to share your requirements to build a crypto exchange with margin trading.