Trading using borrowed funds to increase exposure, with the risk of liquidation.
Margin Trading allows traders to borrow funds to increase their market exposure. It amplifies both potential gains and potential losses, making it one of the most high-risk trading strategies in crypto.
Margin trading is commonly used with futures and perpetual contracts.
How Margin Trading Works
A trader opens a position using collateral
They borrow additional funds from the exchange or liquidity pool
Total exposure becomes larger than the initial capital
If the market moves against the position, liquidation may occur
Margin ratios determine how close a position is to liquidation.
Types of Margin
Isolated Margin: Risk is contained to one position
Cross Margin: Collateral is shared across multiple positions
Benefits of Margin Trading
Increased exposure with less capital
Ability to short assets
Useful for hedging
Enables advanced trading strategies
Risks
High liquidation risk
Rapid losses in volatile markets
Funding rates on perpetual futures
Requires strict discipline and risk management
Summary
Margin trading uses borrowed funds to amplify exposure. It offers greater profit potential but carries significant liquidation risk.
