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Best Crypto Exchanges For Margin Trading

Best crypto exchanges for margin trading

Best Exchange for Margin Trading
Best Exchange for Margin Trading
  • Highest margin levels up to 125x
  • Low fees of 0.1%
  • Very high market liquidity
  • Futures trading

Back in the day, cryptocurrencies were an unpopular asset class, which could be bought, stored, and sold. As time progressed, the popularity of Bitcoin and altcoins rose exponentially. This led to several major changes and developments in the crypto world. The increase in the number of exchanges also pumped the liquidity in the crypto market. Now, cryptos are traded just like any other conventional financial markets. The exchanges allow almost all types of trading methods for crypto traders like how they are offered in the Stock or Forex markets.

Terms like shorting, margin/leverage were usually associated with the established markets. But these applications are now found in the crypto space as well. Most of the cryptocurrency exchanges that are existing today offer the facility of margin trading. Margin or leverage trading may seem complex to understand and implement. But in reality, it is simple, and there is no rocket-science behind its working.

Crypto margin trading is an excellent tool to maximize your account balance, if you are consistent with your results. With almost every crypto exchange offering leverage trading, it is important to know which the most reliable ones are. Thus, here in this article, we present to you the most credible crypto exchanges that offer great margin trading facilities. However, before diving right in, let’s understand the basics of margin trading.

What is Crypto Margin Trading?

Margin trading is a trading feature that allows users to open positions of higher value by ‘borrowing’ capital from the broker/exchange or its clients. Margin trading allows clients to achieve greater exposure on their bought assets without not having to deposit the actual required amount.

In regular trading, users can open positions using their own capital only. For instance, if a trader possesses $10,000 in his trading account, then he can buy a crypto of size worth a maximum of $10,000. On the contrary, in margin trading, the same trader has the ability to buy crypto of size worth maybe $50,000 or more.

Understanding Leverage

A term that is highly connected to margin trading is leverage. Leverage is basically a synonym for margin. Both the terms hold the meaning but differ in the way they are represented.

Simply put, leverage is the numerical value through which traders multiply their position size. For instance, let’s say an exchange has provided a margin trader with leverage equal to 100X. The trader can now open positions 100 times their account balance. If the trader has an account balance of $1000, then he can take positions worth $1,000 x 100 = $100,000. Consequently, the profit potential will also increase by 100 times.

Margin allows us to increase the profit potential by 100X, but the same does not hold true with the loss potential. In other words, the trader will not be accountable for 100 times the loss. This is because the risk in margin trading is not proportional to leverage. Usually, the loss is not greater than the real capital committed to the position.

That said, margin trading does carry a significant amount of risk. And the crypto market is more volatile than the forex market, the risk factor again increases.

Working of Crypto Margin Trading

On the frontend, the working of margin trading is simple and straightforward. The margin trader is given some capital by the exchange to open larger positions. Here, the trader risks big to win big.

On the backend, the process is a little lengthier, however. Firstly, the trader needs to make a deposit to open a new position. This deposit is called ‘initial margin.’ In addition to that, the trader must also possess some amount in their account balance. And this amount for maintaining the balance is referred to as ‘maintenance balance.’

In a situation when you obtain a credit loan, the bank holds an asset of specific value as collateral. The same is the scenario with exchange exchanges as well. In margin trading, the exchange is essentially providing you with a credit loan to open a larger trade position. And to do so, they keep your assets as collateral. In essence, the initial margin deposited to the exchange acts like your collateral asset. In conclusion, the working of margin and leverage in crypto exchanges is no different from that of the credit system in the traditional banks.

Margin and Leverage

As mentioned, margin and leverage have the same meaning but differ in representation. Typically, the margin is represented as a percentage, whereas leverage is represented as a multiplier value.

For example, let’s say an exchange provides leverage of 100X. A trader can open a $1000 worth position with $10 of the actual investment. This is because the exchange will be providing 100 times the actual capital ($10). Another way to look at it is that the trader will be required to deposit 1% of the position size. Since the trader is opening a trade worth $1000, he will need to deposit 1% of this $1000. And this 1% corresponds to the initial margin.

However, since you only have 1% of actual investment in the $1000 position you have opened (i.e. $10), when the market moves against you by just 1%, your entire trading account will be wiped out. Always keep this in mind when opening large positions using leverage.

Different exchanges follow different margin lingo. Some follow the percentage terminology, while some use the multiplier value, while few represent it as a ratio. However, the ratio lingo is very similar to the multiplier value terminology. When leverage is represented in a ratio, the letter 'X' in the multiplier value is replaced with ':1.' For example, if an exchange offers leverage of 200X, then it is equivalent to leverage of 200:1. Similarly, the leverage of 50X would be written as 50:1. The ratio terminology is mostly followed by Forex brokers and very few crypto exchanges. Thus, we shall fix our margin language by representing it as a multiplier.

Leveraged trading in cryptocurrencies has gained immense popularity lately. Presently, almost every crypto exchange gives users the ability to trade with margin. However, not all crypto exchanges offer the same leverage. It varies from exchange to exchange, and sometimes the difference can be drastic. For example, some exchanges offer leverage to as high as 200 times their deposit value, while some do not go over 20X, 50X, or 100X.

Long and Short in Margin Trading

There are two directions in the market. As a speculator, our job is to predict if the price will rise or fall. The exchange will provide you with a couple of options while opening a new position.

The two choices presented by the exchange to you are:

1. Long

Going long is a type of position taken when the trader anticipates the price of the crypto asset to rise. For instance, if a trader opens a long position on BTC/USD at $10,000, then he must be expecting the price of Bitcoin to trade higher than $10,000 in the near term. If the value of the asset increases in the anticipated direction, the profit on the trade also increases proportionally to the acquired leverage.

2. Short

Going short on a digital asset means that a trader is anticipating the price of it to drop. For instance, let’s say the current of ETH/USD is trading at $350. And you are expecting the price to fall until $280. In this scenario, you must open a short position on Ether as you are anticipating the price to decrease in the future.

Thus, traders can participate in both rising and falling markets to make a profit from it.

When a long or short position is opened, the initial margin is held by the exchange as collateral. This held capital is released once the position is closed by the trader. Finally, the initial margin is added to your account balance along with the realized profit.

Trade example

Let’s say you deposited $500 into your crypto exchange account having a leverage of 100X. Assume the current market price of ETH/USD is $400. You are expecting the price of ETH to rise to $450 in the near term. So, you go long 10 ETH/USD worth $4000.

With leverage of 100X, the initial deposit made would be only $40. This $40 will be held by the exchange as collateral until the trade is closed. When they reach $500, the position will be squared off. The profit will be $500. The exchange will pay out the profit, including the held deposit directly into your trading account balance.

What is ‘Margin Call’ and ‘Liquidation’ in Crypto Margin Trading?

Up until now, we have discussed terminology and scenarios when the market moves in the desired direction of the trader. Let’s shed some light when the price goes against the expected direction.

When you open a position, and if the asset moves against you, then there is a possibility where the exchange would close (liquidate) your position without your consent. However, this is done in a more systematic fashion.

When you open a position, there is a specific price set by the exchange. If the asset goes against you and the price reaches the level set by the exchange, you will get a margin call. In a margin call, the exchange will contact you via call/email and request you to add additional funds into the account to maintain the position.

If the price continues to ride against you, the exchange will liquidate the position at a specific price – liquidation price. Liquidation price is the price at which the exchange closes all the positions automatically. The liquidation takes place when the loss exceeds the initial margin amount held as collateral.

Let’s say you have an account with a crypto exchange of leverage 2:1. You went long two units of BTC/USD at $8,000. The position size is now worth $16,000. So, the initial deposit charged by the exchange would be half of that, ie $8,000. The liquidation price for this trade will be $4,000. The unrealized loss when your 2 Bitcoin drops to $4,000 would be $8,000, which is equal to the initial deposit. Thus, the exchange would liquidate the position if the price falls below $4,000.

Margin Trading with Crypto Exchanges

As the popularity of cryptocurrencies is increasing at a great pace, more and more crypto exchanges are enabling the services for clients to trade with leverage. This has led to a competition among these exchanges. Now, the leverage offered is another factor taken that must be taken into consideration while choosing a crypto exchange.

Traders must also be aware that trading cryptos through the margin are different from trading forex currencies through margin. The concept remains the same, but the market varies in volatility and liquidity. The higher volatility could either drastically increase your profit in a short while or liquidate you by the exchange in no time.

Trading with margin is not the only way for traders to maximize their profit. There is an alternate way to benefit from margin trading for the ones who are not willing to take the added risk. Some exchanges have a feature of margin funding where users can commit their capital to the exchange to lend it to other margin traders. The purpose of mentioning this here is to let you know that there are other ways to profit from margin trading space provided your exchange offers the lending facility.

Crypto Exchanges That Offer Exceptional Margin Trading Services

While margin trading offers incredible opportunities for crypto traders to increase their profitability, many other factors go into considering whether a crypto exchange is the best for you or not. To help you with that, we have picked top 5 crypto exchanges to consider.

Before we discuss the pros and cons of some of the best Cryptocurrency exchanges. Here are a few terms you need to be familiar with.

Rollover Fees: In crypto trading, rollover fees is the cost a trader incurs for keeping a position open beyond a specified time. Every crypto exchange has their specified time which can range from a few hours to overnight. The fees is usually a predetermined percentage of the open position.

Funding Interval: is a fixed duration determined by the crypto exchange in which a trader can receive or pay funding if the trader has positions during these predetermined periods. For example, if the funding interval is every 6 hours, then a crypto trader can pay or receive funding at 12.00 AM, 6.00 AM, 12.00 PM and 6.00 PM GMT. The funding paid or received is determined by the value of the position and the funding rate.

Perpetual Contracts: These contracts are similar to traditional futures contracts but they do not have a fixed expiry date.

Kraken

Kraken exchangeBased in San Francisco, Kraken is one of the largest cryptocurrency exchanges in North America. Although this exchange supports only 20 of the most popular cryptocurrencies, the margin trading facilities offered by them are exceptional.

Pros

  • Allows traders to flip a spot position on margin. i.e., you can change your exposure on particular crypto from 'long' to 'short' or from 'short' to 'long' by making an opposing trade using larger volume.
  • Allows for dark pool trading if you want your transaction to stay off public records. Dark pool trading fee ranges from 0.26% to 0.36% of the traded volume.
  • You have the option to decline the use of margin provided.
  • Offers variable trading fees depending on a trader's monthly traded volume, and whether the trader is a 'maker' or 'taker'. 'Maker' is charged a maximum fee of 0.16% and a minimum of 0% of the traded volume. A 'taker' is charged a maximum of 0.26% and a minimum of 0.1% of the trade volume.
  • Very low margin fees with a minimum of 0.01%
  • One can participate in the futures market with leverage of up to 50x
  • Can trade Fiat-to-Crypto pairs

Things you need to know before margin trade with this exchange

  • A fee of between 0% and 0.26% on every trade executed.
  • Charges an opening margin fee and an equivalent for rollover trades
  • The maximum margin is not available for all cryptos.
  • Rollover fees are charged for every 4 hours a position is open.

Binance

Binance exchangeHeadquartered in Malta, Binance has over 164 tradable cryptocurrencies and provides leverage of up to 125x for which is among the highest for crypto exchanges.

Pros

  • Highest margin levels among top crypto exchanges between 1 to 125x
  • Low fees of 0.1% across the board
  • Quick to list new cryptos as soon as their ICO is completed
  • Highest market liquidity averaging $7.2 billion
  • Offers futures trading
  • Using Binance Coin lowers trading fees by 25%

Things you need to know before margin trade with this exchange

  • Not allowed in the US and a handful of other countries
  • Doesn't offer fiat deposit or withdrawal
  • Availability of numerous crypto options might confuse beginner traders.

Poloniex

Poloniex ExchangeHeadquarter in Delaware, Poloniex is a US-based crypto exchange with over 90 tradeable cryptocurrency pairs with up to 2.5x margin. The most frequently traded cryptos on the exchange include; Bitcoin, Dash, Ethereum, Litecoin, Monero, and Zcash.

Pros

  • Very low fees. Maximum of 0.15% for 'makers' and 0.25% for 'takers'.
  • Allows for futures trading on margin
  • Offers a crypto lending and borrowing platform

Things you need to know before margin trade with this exchange

  • Does not support deposit and withdrawal using fiat currencies
  • Poor customer support reviews by traders
  • Low liquidity compared to other exchanges

Bybit

Bybit ExchangeBybit is a Singaporean Cryptocurrency exchange. It offers 100x margin trading in the following cryptos; BTC, XRP, ETH, EOS, and USDT.

Pros

  • Provides one of the highest margins among top crypto exchanges
  • Offers a free $90 sign-up bonus
  • Flat 0.025% rebate for 'makers' and 0.075% fees for 'takers'.
  • Offers Bybit Mutual Insurance for perpetual contracts

Things you need to know before margin trade with this exchange

  • Banned in the US, China, Hong Kong, and some other countries.
  • Futures trading facility not available
  • Few tradable assets compared to other major exchanges
  • Doesn't support the transaction with fiat currencies
  • Lack of KYC.

BitMex

Bitcoin Mercantile Exchange is a Seychellois crypto exchange. It offers a maximum margin of 100x trading on BTC/USD, ETH/USD, ADA, BCH, EOS, LTC, TRX, and XRP.

Pros

  • With the maximum leverage of 100x, it's among industry highest
  • Flat makers' rebates of 0.025% and fees of 0.075% for 'takers.'
  • It has several types of contracts. They are traditional and futures contracts, perpetual contracts, BitMEX upside profit contracts, and BitMEX downside profit contracts.
  • Relatively high liquidity, averaging $1.55 billion daily.

Things you need to know before margin trade with this exchange

  • Charges a settlement fee of 0.05% on BTC futures
  • Imposes funding intervals of 8 hours
  • Has very few tradable assets compared to other crypto exchanges
  • The maximum margin of 100x is only applicable to BTC.
  • It is banned in the US and Canada
Crypto ExchangeMaximum Leverage OfferedKey Features

Kraken

5x

  • Trading Fees: From 0.075%,
  • Futures market,
  • Allowed for US traders,
  • Derivatives trading,
  • Margin and rollover fees: from 0.01%,
  • Dark pool trading
  • Offers stop, limit, trailing stop and conditional order types

Binance

125x

  • Futures market,
  • Trading Fees: 0.1% flat rate,
  • Lower fees using Binance Coin,
  • Over 164 tradable assets,
  • Highest daily liquidity: $7.2 billion
  • Offers stop, limit, trailing stop and conditional order types

Poloniex

2.5x

  • Fees: From 0.25%,
  • Futures market,
  • Derivatives trading,
  • Lending and borrowing platform
  • Offers stop, limit, trailing stop and conditional order types

Bybit

100x

  • Fees: From 0.075%,
  • No futures market,
  • Derivatives trading,
  • $90 sign-up bonus
  • Offers stop, limit, trailing stop and conditional order types

BitMEX

100x

  • Fees: From 0.075%,
  • Settlement fees: 0.05% for BTC futures,
  • Funding intervals of 8 hours,
  • Futures market,
  • Derivatives trading,
  • Several types of contracts
  • Offers stop, limit, trailing stop and conditional order types

Crypto Margin Trading Is A Double-Edged Sword!

If you aren't already aware, cryptocurrency trading is highly volatile, and your capital could easily be wiped out if you are not careful while trading them. In this section, we will recap what margin trading on cryptocurrency exchanges mean, show how you can mitigate risk and increase profitability using various order types.

Say your broker offers a maximum margin of 125x. So, if you have $1000, the margin of 125x means that you will be able to trade cryptocurrency worth $125000. As you can imagine, your profits will be significantly higher than if you just traded cryptocurrencies worth 1000. Your profits have been magnified. Similarly, if you made a trade using the high margin and the trade did not go your way, the losses you will incur from a $125000 trade would be significantly higher than that you would if you had used no margin or lower margin. With a higher margin, it becomes increasingly easy to wipe out your trading balance. In this example just a 1% swing in price is $1250 which is more than your capital and hence you would have your position closed if the price moved against you by this little.

While we understand the allure of trading with the highest margin, it would be advisable that you stick with lower margins – at least for beginner traders. All the above exchanges we have reviewed offer excellent cryptocurrency trading services, not all of them are beginner-friendly. For a beginner, here are some characteristics of the exchange for you:

  • You would want to select an exchange with moderately low margin – so that you aren't tempted to trade with the highest possible margin available.
  • Select an exchange that has fewer fees, unlike Kraken, which charges margin as well as a rollover fee for every 8 hours.
  • Choose an exchange with the highest possible liquidity and if possible, one that has a flat rate fee across the board.
  • Select an exchange with a lot of tradable assets. Such an exchange will ensure that you have plenty to choose from and diversify your portfolio if you so wish. More so, if you are a crypto enthusiast, it will allow you to learn about the several cryptocurrencies available.

With these characteristics, you can already establish which of the above crypto exchanges are best suitable for beginners.

For an experienced trader, the issue of margin only comes to play as risk management measures. However, having exposure to several types of contracts insurance programs will be a considerably added advantage.

Another risk inherent in the cryptocurrency market is the amount of volatility involved. In the recent past, we have learnt that cryptocurrencies tend to be very volatile. Therefore, it is imperative for a trader to at least try and protect themselves against such volatilities whenever possible. These exchanges have several risk management measures.

Which Exchange Is The Best For You?

It totally depends on your requirements. For instance, Kraken offers the trader the option of flipping a spot position on margin. Meaning, if you notice that your open trades are not going your way, you are free to open an opposite position of a higher volume using margin. The intention, in this case, is to offset the loss-making trade and earn a profit on top. Hence, you can flip a long position into a short one and a short position to a long position. Note that for beginner traders, the concept of flipping may be complicated and pose an additional risk of incorrectly implementing it.

Exchanges like ByBit crypto exchange offers traders the option of buying mutual insurance for their open contracts. Mutual insurance is a risk management tool allowing traders to hedge their long or short positions in a volatile market. If you have a long open position, you can opt to buy insurance that will protect you in case the market adopts a downtrend. Similarly, if you are in a short position, you can purchase insurance to protect you against sudden upswings in the market. The best feature of such insurance programs is that you have the freedom to choose whether your insurance will fully or partially cover your open position. More so, you get to choose the period over which your insurance lasts.

Using Different Trading Orders to Mitigate Risk

One of the most popular risk management techniques in the volatile cryptocurrency market is to use different order types. Several exchanges offer different order types. The most common ones include limit orders, market orders, and conditional orders. Market orders allow you to place a trade instantaneously and your trade gets executed at the best price from the order book. With such an order, you do not set the price you wish your trade to be executed at which makes your trade vulnerable to gaps and slippages in a volatile market. The limit and conditional order types help mitigate and sometimes profit from volatility.

For a crypto exchange providing limit order types, a trader is allowed to set the price at which their trade will be executed. In such an instance, when the tradeable crypto-asset reaches the target price, your trade will be executed at that price or a better one. In the volatile cryptocurrency market, such an order removes the element of slippage and also ensures that you can benefit from split-second price hikes that trigger your limit orders. Note that some crypto exchanges like Bybit charge a small fee of 0.075% to execute a limit order. Trailing stops can also be used to lock in profits and stop losses in a volatile market where you may not be quick enough to exit a position.

This feature is particularly useful for every type of trader – beginner and experienced alike.

Conditional order in crypto trading is more advanced and can be either market or limit orders. Such an order is submitted only when a specified criterion is met in the trading conditions. For a conditional market order, the trade is executed when the anticipated 'trigger price' hits the 'last' traded price. For a conditional limit order, the order will be forwarded to the order book and wait to be executed when the anticipated 'trigger price' hits the 'last' traded price.

Conclusion

All the crypto exchanges we have reviewed above have great platforms suitable for both beginner and experienced traders. However, in terms of services offered, a little differentiation makes them stand out or fall short against the competition. Below is our review on the same.

Crypto ExchangeBeginner-friendlyPreferred for Advanced trader
Kraken

Deals with fiat currencies

Dark pool trading
OTC markets
Binance

A lot of tradable assets
Lower cost using Binance Coin

Highest margin
Highest liquidity
Access to new coins after ICOs
Poloniex

Easy sign-up
Poor customer support

Lending and borrowing allowed.
Bybit

Easy sign-up: no KYC
Free sign-up bonus
Bybit Mutual Insurance

Fewer tradable assets
No futures trading
BitMEX

Flat fees

Several types of contracts
Relatively higher liquidity
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