Spot trading is a popular way for investors to access the crypto market in a straightforward manner. It’s mainly fiat-to-crypto trading, as well as crypto-to-crypto trading. It’s simple, you get a crypto wallet, you buy a token with fiat currencies, and then once the price has increased, you sell the asset and make a profit.
Margin Trading vs Spot Trading?
Well, imagine you don’t have enough for the trade you’re looking towards leveraging. With margin trading, the trading platform allows you to open a position that is larger than the balance of your account. Essentially, this allows people, or traders to access an amount of funds to increase their order, which then effectively means they boost the gain from a profitable trade. In essence, you’ll be maximizing your potential gains, allowing you to open a larger position than you would normally allow within your account.
With margin trading, you’re effectively boosting your gains from market swings, opening up your trading horizons, and letting you, the trader, explore new trading opportunities and strategies. This then allows you to use leverage for the short, or long term gains on a variety of cryptocurrencies, giving you a bigger earning potential compared to spot trades.
What’s an example of Margin Trading?
Let’s all assume that the price of Bitcoin Cash (BCH) is equal to USDT1000 and a trader thinks, and feels that it will rise in the future. However, the trader only has USDT100. The amount the trader has won’t limit him from amplifying his potential gains with margin trading. The trader can use the maximum 10x leverage provided by Bitcoin.com Exchange to open a USDT1000 long position (trader’s USDT100 was multiplied to 10). Now let’s assume that during the next few hours the price of Bitcoin Cash rocketed by 10% to USDT1000. The trader decides to close this profitable position and realizes a positive Profit & Loss of nearly USDT100 (you need to take into account the fees and paid…