Crypto Margin Trading – Tutorial & Best Exchanges

With a boom in cryptocurrency, margin trading on this volatile asset provides new and potentially lucrative opportunities. In this tutorial, we dive into what crypto margin trading is, how it works, plus tips for choosing the best exchanges and platforms. We also cover the pros and cons of crypto margin trading and a guide to getting started.

Crypto Margin Trading Platforms

Trade the major Cryptos against USD, EUR, GBP and AUD. All traded with tight spreads. No virtual wallet required, just a trading account.
Coinbase offers access to almost 4000 digital coins. It the easiest place to buy, sell, and manage your cryptocurrency portfolio
This post contains affiliate links, and this website will be compensated if you make a purchase after clicking the links.
BitMex offer the largest liquidity Crypto trading anywhere. Contracts from $1. Compliant with global AML guidance, the platform offers cutting edge crypto exchange and hedging.
eToro lead the way in Crypto trading. The lowest spreads (from 1% for BTC), their own wallet service and the largest number of Cryptos to trade. FCA Regulated.
67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Coinmama aim to make entering the crypto market as easy as possible, offering BTC,ETH,LTC,ADA,BCH and XTZ
Buy and sell an extensive list of leading and emerging crypto coins at Binance.
Paxful offers buying and selling of the world's leading cryptocurrencies.
Kraken is a top crypto trading exchange offering the largest altcoins by market cap.
Trade over 50 crypto pairs on an extensive list of popular and emerging digital currencies.
Webull offers trading on popular cryptos such as Bitcoin against the US Dollar.
Trade a handful of the top cryptos at Quotex.
Trade on dozens of cryptocurrency coins.
Just2Trade offer hitech trading on stocks and options with some of the lowest prices in the industry
IB Boast a huge market share of global trading. With a minimum deposit of $10,000 however, they remain an option for larger traders only.
Zulutrade work with a range of brokers that deliver trading on a huge range of cryptos - See each brand for specifics
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What Is Crypto Margin Trading?

Crypto margin trading is the practice of using leverage to multiply the results of a trade. The amount a trader has deposited in their account is known as the margin. A broker offering margin trading will provide traders with a leverage quote, this is usually displayed as either a ratio (e.g 1:5) or a multiple (e.g 5x), meaning that for every 1 Bitcoin (or other base crypto) deposited, the results of a trade are multiplied by 5.

How does crypto margin trading work

To enable traders to open larger positions, the broker allows them to borrow capital. This will need to be paid back in full, but the profits can be retained by the trader. For example, if your leverage is 1:5 and you deposit $1,000, you’ll have $5,000 to trade with. If you use this to purchase Ethereum and the price moves 5%, you’ll have $5,250 worth of ETH. If you close your trade there and return the $4,000 borrowed, you’re left with $1,250, having made a $250 profit. If you’d placed the same trade in your spot account, you’d have made a $50 profit.

It’s important to note that profits are amplified, but equally, so are losses. Plus, your borrowed amount will still need to be returned. Therefore, margin trading on cryptos should only be utilised by knowledgeable investors.

Some of the top crypto exchanges now offer crypto margin trading, including Binance, Kraken and Crypto.com. However, it is a fairly new practice, so some of the top brokers for professionals, such as TradeStation, are yet to facilitate crypto margin trading.

What Is A Margin Call?

If the price of the asset held on margin drops in value significantly, a broker will issue a margin call. This means that traders will have to prove that they can return the amount borrowed, by depositing more funds. The account will usually be suspended from opening new trades until this has been completed, or the asset rises in value again. A margin call is designed to protect traders from losing more than they can afford.

For example, if you’re trading $1,000 on margin with 5x leverage and the value of ETH drops 17.5%, the value of the asset you hold is now worth $4,125. Your operating loss is -$875. Since you’ve only deposited $1,000, you’re in danger of losing more than your initial deposit amount if the value slips further. At this point, a margin call may be issued.

Pros Of Crypto Margin Trading

  • Lower capital requirements – Some Bitcoin trading strategies that require large amounts of capital. For example, scalping is the practice of executing short and sharp trades to collect small profits regularly. Crypto margin trading allows traders to maximise the results of each trade and means profits can accumulate quickly.
  • 24/7 margin trading – Unlike the forex and commodities markets, crypto can be traded 24/7. If you’re a weekend trader, this means you can take advantage of margin trading outside of usual operating hours.

Cons Of Crypto Margin Trading

  • Losses are amplified – While crypto trading on margin can mean increased profits, it also means that any losses are multiplied. Losses can exceed the deposit amount, so the risk involved is significantly larger when compared with trading on a cash account. Traders should consider whether they can afford the risk.
  • Interest on borrowed crypto – While traders keep all the profits from their trades, some exchanges, such as Binance, charge interest on the borrowed amount. The rate varies based on the cryptocurrency and the length of time capital is borrowed.
  • Negative balance protection – In the world of forex, margin trading has been around a while. Therefore, most brokers are subject to regulation that aims to protect retail investors. In the UK, forex brokers regulated by the Financial Conduct Authority (FCA) must provide negative balance protection, for example. This means that traders are prevented from losing more than their deposit amount when trading on margin. This level of protection is not available in the crypto industry, leaving altcoin margin traders exposed to significant risk.
  • Brokers and exchanges – Having mentioned the lack of regulation above, there is a global tightening of restrictions that is already impacting the availability of crypto margin trading. In 2020, Coinbase Pro, one of the top Bitcoin exchanges, suspended margin trading for US customers, citing new guidance from the Commodity Futures Trading Commission (CFTC). Binance and Robinhood also restrict margin trading on cryptos for US customers and eToro has suspended it at times due to volatility. These restrictions could increase and margin trading on crypto assets phased out on Bitcoin exchanges in the US and potentially other jurisdictions too.
  • Limited trading pairs – Not all crypto margin trading platforms offer leverage on all pairs, sometimes it’s only available on one or two. This limits traders’ scope for utilising an arbitrage strategy. For example, crypto.com only offers margin trading on BTC/USDT.

How To Start Crypto Margin Trading

To start crypto margin trading, you’ll first need to select a broker or an exchange that provides the service. Some of the best crypto exchanges that offer margin trading include Binance and Kraken. Then sign up to an account and complete any KYC checks. Most exchanges will require proof of identity if they also offer fiat exchange, however, there are some, such as Prime XTB, which have no KYC checks. Next, visit your settings. There will usually be an option to switch your account from spot to margin trading. In some cases, you’ll then need to transfer tokens to your margin account.

Binance crypto margin
Binance how to switch to crypto margin trading

Choosing A Crypto Margin Trading Broker

  • Leverage offered – Take a look a what leverage a broker is offering to understand how much you can trade. If you’re happy with the risks involved, higher leverages can mean higher profits, but they’re not always necessary. Both Binance and Kraken offer leverage of 1:5 when crypto margin trading. Crypto.com offers 1:3 and IC Markets offers 1:2.
  • Fees – The fee structure for margin trading varies per broker. Some operate by allowing traders to borrow tokens as leverage, including Binance. In this instance, interest is usually charged on the borrowed amount. Kraken, on the other hand, charges an opening and closing fee on the spot value of the trade. A rollover fee is applied based on how long the position is held. Look for a broker whose fee structure you’re comfortable with. Also, taxes will usually need to be paid on any gains, in line with rules in your jurisdiction.
  • Demo accounts – Since Bitcoin margin trading involves an increased level of risk, traders must have the opportunity to practice their strategies using signals beforehand. A trading simulator and online courses allow clients to trial strategies before using real money. Profit calculators are also useful to help predict the outcome of a trade and can replace the manual spreadsheet you’ve previously worked with. Plus500 offers a great crypto-simulator with 2x leverage, however this is only available on their professional trading account.

Final Word On Crypto Margin Trading

Now we’ve explained the ins and outs of crypto margin trading, you’ve hopefully got the understanding to get started. Bitcoin and other cryptos are highly volatile markets and while trading on margin can mean huge upside, retail investors should also be aware of the risks involved. It’s possible this asset could suffer from increased regulation in the future, but for now, it represents an exciting opportunity for traders.

FAQ

How Does Bitcoin Margin Trading Work?

Crypto margin trading means investors can multiply the results of their Bitcoin trade by utilising leverage. Leverage is the number of times you can multiply the results, it is either written as a ratio (e.g 1:3) or a multiple (e.g 3x). Leverage allows traders to borrow funds from their broker. In this way, a trader can execute much larger positions than their deposit amount and can amplify profits.

Are There Many Crypto Exchanges That Allow Margin Trading?

The top crypto margin trading exchanges that allow margin trading include Kraken and Binance, but there are more to choose from. However, availability does vary by location. Some popular exchanges, including eToro and Coinbase, have suspended crypto margin trading at times due to volatility in the market.

Bitcoin margin trading in the United States is restricted by the Commodity Futures Trading Commission (CFTC). Regulated exchanges that previously offered the service, such as Coinbase and Binance, have removed leveraged trading in 2021 for clients from the USA.

Will A Crypto Margin Call Go Away?

A margin call will cease once your account has been deposited with sufficient funds or the asset has increased in value. A margin call is designed to protect a trader from losses that exceed their deposit amount.

Can I Buy Crypto On Margin?

Yes, some of the top Bitcoin exchanges now offer trading on margin, with the opportunity to multiply the results of any trade. Whilst the practice is restricted in some jurisdictions, like the US, it is available in the UK, Australia, India, and Canada, to name just a few.