Complete Guide to Margin Trading

What is Margin Trading?

Margin trading allows traders to amplify their trading results and profits by borrowing crypto assets from the platform. Traders can go long or short using leverage, earning higher returns with less funds. For example, with 10x leverage, a trader can control assets worth $10,000 with just $1,000 of investment.

II. Differences Between Margin Trading and Spot and Futures Trading?

1. Margin Trading vs. Spot Trading

Borrow to Trade: Margin trading allows traders to borrow crypto assets for trading, whereas spot trading only allows traders to use their own funds. Note: Traders must first deposit margin (as collateral for borrowing funds) before they can use margin trading.

How to Increase Profits: 1) Short: Traders can borrow assets, sell them at a high price, and buy them back at a lower price to profit from market downturns. 2) Amplify returns: Traders can borrow funds to execute larger buy or sell orders, thus multiplying returns.

Risk: Margin trading is riskier as it amplifies both profits and losses.

Margin Trading vs. Futures Trading

Trading Assets: The margin in futures trading does not involve actual assets, whereas margin trading involves real assets.

Risk: Margin trading increases fund utilization and is less risky than futures trading.

Target Users: Margin trading magnifies fund utilization and is suited for investors seeking high-risk, high-reward investments with limited capital. Futures trading offers more flexible trading methods, allowing traders to profit under varying market conditions.

Margin Trading Types and Sides

Margin Types

Cross Margin: 1) The risk is shared across multiple trading pairs; 2) It reduces liquidation risk during market volatility.

Isolated Margin: 1) The risk of each trading pair is independent; 2) It helps isolate risk and protect funds in other trading pairs.

Loan Methods

Traders can choose manual borrowing, auto borrowing, manual repayment, and auto repayment.

After auto borrowing is enabled, when the trading amount exceeds the traders' available balance, the excess is automatically borrowed.

After auto repayment is enabled, trades in the opposite direction of the borrowed funds will automatically be used to repay the loan.

Margin Trading Sides

Long

Traders make profits by buying crypto with USDT and later selling it when the price rises. This buy-low, sell-high approach is a long strategy. It is also the most common and simplest trading method in the market.

Short

Traders sell crypto at a certain price and then buy it back when the price drops to increase their holdings of the crypto, which is known as a short strategy.

Costs of Margin Trading

Traders' margin trading costs primarily include margin interest and trading fees. Margin interest refers to interest on borrowed funds. Trading fees are incurred when opening and closing positions, which are the same as spot trading fees.

Overall, HTX offers competitive loan interest rates for BTC, ETH, and USDT, and its interest rates are low and stable. Meanwhile, the fluctuation of its interest rates is minimal in highly volatile market conditions.

Terminology

Margin: The trader's funds used in margin trading, which determines loan limits.

Loan Adjustment Factor Loan limits for different cryptos are adjusted based on specific factors.

Negative Equity: The trader's assets are insufficient to repay their loans, leading to additional debts.

Liquidation: A trade is liquidated when the price moves against the trader's position, depleting their margin to zero and triggering liquidation.

Leverage: The ratio of a trader's investment to borrowed funds.

Stop-Loss Order: It is a type of order that converts to a market order at the preset price level. When the market price reaches the price level preset by the trader, the order will convert to a market order to buy or sell at the market price.

Take-Profit Order: It is a type of order that closes the position at a preset price level and is often executed when it is profitable.