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- 1 Cryptocurrency trading is the act of reasoning on digital asset price movement attracting investors and traders.
- 2 Cross margin and Isolated margin trading are rocking the crypto environment with their superior benefits.
Trading is one of the best ways to make profits. It has swiftly expanded its roots in the cryptocurrency market. The booming craze for digital assets and collectibles could be one of the main reasons people are investing in crypto. Nowadays, cryptocurrency has become one of the best sources to earn passive income and profits through trading. Yet, you need to be more careful, as the trading pool includes both the bulls and bears. Margin trading is one of the best ways of trading crypto.
So, without wasting a single minute, let’s directly jump to the universe of margin trading and its types.
A Glimpse into Margin Trading
Margin trading is all about using additional funds for trading. In such trading, investors borrow funds from a broker or any exchange to buy or sell more assets than they can afford. The assets are used as collaterals to take on debt and make larger trades with the hope of making more profits.
Do you think margin trading is better than regular trading?
Yes, you can say that. Various benefits make margin trading a good option for crypto traders. Higher gains, room for positions with less capital, and fewer fund requirements are some perks. In addition, Binance, Kraken, Phemex, KuCoin, and Crypto.com are some platforms for margin trading.
Now you are all set to understand the types of margin trading and pick one for the next move. Let’s get started.
Cross Margin and Isolated Margin
Cross margin and Isolated margin trading are two different tradings available on varied cryptocurrency trading platforms. Individual trading comes with its risks and utilities and needs to be done carefully.
In cross margin trading, all the funds available in the account are used as collateral for trading. Such type of trading is considered to be a risk management approach, where traders use the whole crypto funds as collateral for the open positions. Focusing on the benefits, such a type of trading offers flexibility in margin allocation. It reduces liquidity risk by pooling the entire balance, which minimizes the risk of premature liquidation. Higher risk of total liquidation, potential for over-leveraging, and less control over the trade degrades the effectiveness of cross margin trading.
Isolated margin trading on the other hand is a risk management tactic, where traders allocate a particular amount of funds as collateral for trading. In simple terms, the amount of margin is limited to a particular position, as is totally up to the cryptocurrency trader. The remaining fund in the account is not affected by the trading activities. Major benefits of Isolated trading involve controlled risk, clarity in profits and loss, and predictability. Close monitoring, limited leverage, and management overhead are some cons of Isolated trading.
Conclusion
Margin trading is considered to be better than spot trading in many ways, offering a space for risk management. Cross Margin and Isolated margin are two types in which margin trading can be carried out. It provides traders with many perks that are missing in other approaches.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
