Basics of Margin . Trading

Margin Trading is also known as margin trading. It is a form of trading that uses financial leverage so that users can buy and sell exchanges for more money than they have. From there, creating a higher profit and of course the risk will also be higher than normal trading.

Margin Trading – Long, Short are words that investors and traders often encounter in the Crypto, Forex, Stock Market…

Advantages and disadvantages of Margin Trading


For spot trading, traders can only make profit by buying low and selling high. But for Margin Trading, it is possible to make a profit regardless of whether the market is up or down.

At the same time, with the use of leverage, the amount of capital a trader can use to enter an order is much larger.


With the ability to generate high profits compared to the existing capital. In return, when using Margin Trading, the trader will have to bear the VERY HIGH RISK.

For normal trading, unfortunately an investor buys a coin at a high price and is much lower than the point of purchase. If they continue to hold and have not sold, investors still have a chance to wait for it to rise again.

As for Margin Trading, if the loss exceeds the liquidation price compared to the entry point. The trader’s coins will be forced to sell to repay the previous loan and there is no chance for it to increase again.

Some terms in Margin

Leverage (Leverage)

Using leverage, a trader can trade with x times their capital (x is a positive number).

Example: When a trader chooses 10x leverage it means that the trader can use 10 times more money to trade than the current capital available.


In Margin Trading, there are 2 positions including: Long and Short.

  • Long Position: Shows a long position.
  • Short Position: Shows a short position.

Margin Call (Alarm Status)

When the status of the transaction reaches the threshold of near burning the account, the exchange will send a notification to the trader to notify the need to add more money to continue maintaining the transaction or it will burn.

Liquidation Price

This is the liquidation price. When the coin price exceeds this price, the exchange’s system will immediately liquidate all the coins of the trader entering that order.

The nature of the operation of Margin Trading

When a trader executes a LONG/SHORT order with leverage x with capital Y. This means, they will borrow from the exchange the amount corresponding to the formula (x-1)*Y to execute that LONG/SHORT instruction.

After closing the LONG/SHORT order, the trader needs to return the exact amount borrowed from the exchange plus 1 loan service fee.

In case, enter a LONG/SHORT order but the price actually goes against your prediction.

When the price reaches the automatic liquidation price, the floor will liquidate to regain the capital that the trader has borrowed before, the loss when borrowing for trading will be deducted directly from the original capital of the trader. out.


  • When a trader enters with a Long (buy) position:

Trader A has a capital of $10,000, Bitcoin price is at $10,000, and A predicts Bitcoin to rise to $11,000.

If the trade is normal, then A will make a profit of $1,000. But, A wants to optimize and increase the number of profits by 3 times.

Therefore, A decides to open a LONG position with LEVERAGE 3x. This means that, A will create a Buy order at $10,000 with a volume of $30,000.

In the most ideal case, Bitcoin rallies to $15,000 and A closes a LONG (sell) position, which would result in a $15,000 profit instead of $5,000 in a regular trade.


When A executed a Long order with 3x leverage, A essentially borrowed another $20,000 from the exchange to execute a BUY bitcoin order at 10,000 with a volume of $30,000 (i.e. I have 3 BTC).

After that, Bitcoin rallied to $15,000 and A decided to close a LONG position meaning that A sold 3 BTC at $15,000 and raised $45,000.

Next, A has to pay back the $20,000 borrowed from the exchange plus a service fee. And A’s capital result has increased from the original $10,000 to $25,000.

In the worst case, the price did not fall back to $9,000 as expected. A’s account only has $7,000 left, at this time the exchange will send A an Email or notice to ask A to top up more money so that he can continue to maintain the order.

If A does not deposit more the price will continue to reach 8,000 which coincides with the liquidation price. A’s account is only 40% of the original total.

Immediately, the exchange will liquidate A’s 3 BTC at $8,000 and get back the $24,000 that A borrowed with interest and liquidation fee (depending on each exchange, there will be different fees). A’s account only has $4,000 left.

  • When a trader enters a Short (sell) position:

Trader A has a capital of $10,000, Bitcoin price is at $10,000 and A predicts Bitcoin to drop to $9,000.

If the transaction is normal, then A will have to sell his Bitcoin at the moment and wait for the price to drop to $9,000 to buy it back when the price returns to $10,000, then A can make a profit of $1,000. But, A wants to make a profit just by falling prices.

Therefore, A decides to open a SHORT order with LEVERAGE 3x. This means that, A will create a sell order at $10,000 with volume 2BTC.

In the most ideal case, Bitcoin drops to $9,000 and A closes his SHORT order, making a profit of $2,000 instead of waiting for the price to retrace to take profit on a regular trade.


When A executes a SHORT order with 3x leverage, A essentially uses $10,000 as collateral to borrow 2 BTC from the exchange to execute a SELL bitcoin order at 10,000 with a volume of 2 BTC (i.e. I have $20,000).

After that, Bitcoin dropped to $5,000 and A decided to close the SHORT order meaning that A bought back 2 BTC at $5,000 and earned 2 BTC + $10,000.

Next, A must return the 2 BTC borrowed from the exchange plus the service fee. And A’s capital result has increased from the original $10,000 to $20,000.

In the worst case, the price did not go as expected but skyrocketed to $13,000. Supposedly, this 13,000 level coincides with the liquidation price.

Immediately, the exchange will liquidate account A using A’s $10,000 previously mortgaged and $20,000 from the exchange’s loan to buy back 2 BTC at the price of $13,000 and get back the 2 BTC that A borrowed. At this point, A’s capital has been deducted to $4,000, only 40% of the original account.

Note: Each exchange has a different way of calculating the liquidation price for each different leverage. So before placing an order, a trader should clearly understand how margin trading on each exchange works?

Cross and Isolated Margin

Cross Margin

All positions will use all margin balance in the trader’s account to avoid liquidation. In the event of a liquidation, the investor will lose all margin balances and open positions.

When a trader uses Cross Margin and participates in many other currency pairs. If there is an unsatisfactory transaction, it leads to a Margin call, but if the trader does not deposit money, it is subjective or objective. When reaching a certain limit, the exchange will cut off all other transactions to continue maintaining that position (order) so as not to lead to account burnout.

Isolated Margin

The margin amount of the position is limited to a certain range. If it falls below the Maintenance Margin level, the position will be liquidated. However, this mode allows traders to add or remove margin as they wish.

Contrary to the Cross Margin above, when there is an unsatisfactory transaction, it leads to an account fire. The exchange will immediately liquidate for that trading pair and have no effect on other active trades.

Reputable Margin Exchanges

Currently, there are many margin trading platforms such as:

In each floor, there will be a different way to calculate the fee and calculate the loan amount, and the liquidation price. Traders who use any broker should carefully read the regulations of that exchange before trading.

Experience when using Margin Trading

Always have a trading plan before entering an order

This is a constant if a trader wants to succeed in normal trading especially Margin Trading.

Must prepare for yourself a clear specific trading plan and follow the discipline according to that plan.

Before entering an order, it is necessary to determine the entry point, take profit point, stop loss point, what is the win rate, how much leverage to use…. a lot of things need to be drawn up and calculated on the entry plan.

Do not use borrowed capital to enter orders

There have been many cases of borrowing money from others to play and then burning the account, leaving heavy consequences for both the borrower and the lender.

If you play Margin Trading, consider the amount of money you can lose and never all in 1 order. Let’s allocate capital because no one can be 100% sure of winning. In trading, there are always winners and losers, the important thing is that in the whole you are the winner and maintain in the long term.

No DCA with high leverage

When using high leverage, the trader is taking on more risk than with low leverage. Therefore, be balanced and stick to the set plan.

Indeed, Margin Trading is a very good financial tool for retail traders.

However, the use of Margin Trading requires understanding, grasping price chart analysis techniques, combined with seasoned experience and a strong spirit. STEEL DISCIPLINE. To avoid the highest possible risk is FIRE ACCOUNT.

Therefore, those who are new to the market should not try it without a clear strategy and plan. Money has no emotions so don’t put emotions in money.

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