CEO and co-founder of Platinum Software Development Company. Blockchain enthusiast, blogger.
If you wondered how to make big profits in the times when the entire crypto market is no longer a small thing, margin trading could come to your avail. Only if you are ready to take on a little more risk.
Feeling interested? Then keep on reading to find out the best margin trading tools that will help you to increase your profits while maintaining a palatable level of risk.
Margin trading is done with loaned funds. A margin service or an exchange issues a loan and receives interest for it, allowing the trader to trade with better conditions in exchange for paying interest to the lender. The loan is what creates leverage.
Unlike a regular loan, the margin is usually a ratio. For example, an investor decides to trade using 5,000 USD. The margin will multiply this amount by a certain coefficient (depending on the platform). For example, if the ratio is 20:1, then you will be able to trade 100,000 USD.
To qualify for leverage, you need to have funds in your account. The minimum amount of initial deposit can vary, depending on the terms and conditions of an exchange or a service.
The higher the leverage, the bigger the loan. Some margin services and exchanges offer 5x leverage. You can also find 100x leverage on some popular crypto exchanges. For example, Binance offers 125x leverage and PrimeBit even offers 200x leverage, which are just about the two biggest leverage ratios available on the market.
With the help of leverage, you can significantly increase your potential profit but the risks increase too. The higher the ratio of borrowed funds to equity, the more expensive each price step is. This is good when the trader's forecast is correct and the price moves in the expected direction. Otherwise, the trader runs the risk of incurring large losses or losing all their funds.
Losing all your money could happen in three scenarios:
One should understand that margin trading is usually used by experienced traders since beginners do not have enough knowledge to control the risks.
Fiat margin trading. Let's assume that you decide to trade the US dollar against the yuan. In order to maximize your profits, you need to take out a loan from a fiat broker.
Cryptocurrency margin trading. The main difference here is the use of cryptocurrencies for trading with leverage. Crypto exchanges or trading platforms give you a loan so that you can increase your profits. Cryptocurrency trading sessions have no time limits and carry on 24/7.
Cryptocurrency margin trading falls into two categories:
Centralized margin trading. When you take out a loan from a centralized exchange, all the trading goes through the servers of the exchange. Your funds are custodially stored on the exchange, which has complete control over them. On centralized exchanges, margin calls and the trades are executed by the centrally controlled software of the exchange.
Decentralized margin trading. A decentralized exchange functions on a smart contract, which has no central authority and cannot be centrally manipulated without the public knowing about it. Also, users have control over their funds at all times as they simply connect their wallets to the smart contract without sending their funds anywhere. The smart contract provides liquidity pools that are filled by the lenders and traders can borrow liquidity from them, allowing the lenders to earn interest.
Deribit - one of the most popular platforms for trading cryptocurrency futures and options with 100x leverage. Offers cold storage of digital assets.
Binance - there is a section of the Binance exchange where users can trade futures contracts with up to 125x leverage. On this platform, users neither buy nor sell cryptocurrency directly. Instead, they trade futures contracts based on the current price of an asset.
BitMex - this is the largest margin trading exchange that enables the trading of perpetual cryptocurrency contracts with 100x leverage. Daily trading volumes on this exchange exceed 100,000 BTC.
Currency - this exchange supports 500x leverage for traditional Forex pairs and 100x leverage for cryptocurrency pairs. It also complies with all AML and KYC standards.
Bybit - this service provides traders with 100x leverage but has a lower minimum deposit for opening positions. The platform helps to reduce risks by setting risk limits for margin trading.
Gate.io - three types of trading are provided by this exchange: spot, perpetual and margin. The initial rate for margin trading is $100 and it provides 100x leverage.
Prime XBT - a platform for margin trading with up to 100x leverage. It facilitates the trading of cryptocurrencies, gold, stock indices and other assets.
PrimeBit - for buying and selling BTC, ETH and LTC with up to 100x leverage. This application has a simple interface for trading perpetual contracts.
DeFi as a tool for margin trading
You should know that DeFi platforms do not store funds in wallets. Therefore, loans and credits work through smart contracts. Thanks to the lending opportunities they offer, this segment of the cryptocurrency industry has significantly contributed to the rise of margin trading.
What tools does DeFi currently have for leveraged trading?
Some platforms use quite an original solution — traders loan liquidity through lending pools to enable margin trading. Token holders who want to generate passive income can delegate their funds to the pool and receive interest on the loans they provide to traders. Thus, the lenders receive profits from traders, which gives them a decent passive income. Some popular DeFi projects e.g. DyDx exchange offer their own original approach. Lenders receive interest when a new block is added to the network. Thus, everyone wins.
This works rather simply. Users borrow from other users by providing collateral. As with the lending pools, the margin ratio is not very high, rarely exceeding 10x. Lending works on smart contracts and in the event of failure, the trader simply loses their collateral.
How DeFi lending works
A number of DeFI exchanges provide ‘floating leverage’ margin trading. With this option, users do not need to offer any collateral. This removes the risk of a margin call, which makes trading less risky. These platforms provide assets that have floating leverages (usually from -5 to 5), so the high volatility of the crypto market becomes less of a factor.
Despite the fact that the DeFi market is still very young, it has a number of original solutions for margin trading.
Exchanges such as Binance, Kraken and Bitmex have already gained a certain level of consumer confidence and are considered to be among the 5 best exchanges that allow trading with different leverage. Many other margin services have emerged on the crypto market, offering a number of unique solutions for experienced traders.
But how can a trader choose the best platform for trading from so many services and exchanges? Analyzing the cryptocurrency market, we have discovered the three most promising platforms specializing in margin trading.
5х Margin Tool
5x Margin Tool is a new margin service developed by the Platinum team in 2021. Using high-quality price oracles, the platform provides its users with access to open trades with leverage. The size depends on the amount of tokens that the user invests (from 2 to 10). The platform includes a range of default trading strategies for buying and selling assets. Traders can open positions on SushiSwap, Uniswap, PancakeSwap and 1inch.
What is 5x Margin Tool?
Liquidity providers loan traders their funds in return for interest. If a negative trade occurs, the liquidity provider receives back the entire loan plus interest, while the trader receives the remaining amount of their deposit. Farming is also available on the platform and a share of the platform's profit is distributed among its participants.
The platform’s advantages:
◼️ A farming and token burning system.
◼️ Leverage up to 10x.
◼️ Liquidation income (one of the most profitable items of income of such platforms) will be distributed proportionally among the stakers. This makes this platform unique as other platforms do not have such a feature.
◼️ Availability of multiple blockchains and the most popular DEXs to trade on.
The growing demand for margin trading leads to a high level of competition among cryptocurrency exchanges and services. Different leverage sizes, liquidity pools, risk reduction, interface simplicity and versatility — all these matter when a trader is choosing a platform that specializes in margin trading.
WOWswap is a standalone trading platform created in 2021 and powered by Binance Smart Chain. The service provides users with all the necessary instruments for margin trading. On WOWswap, traders can open trades with up to 5x leverage on the PancakeSwap exchange. Liquidity providers are rewarded for providing liquidity to liquidity pools by receiving commission off the trades.
What is WOWswap?
The platform has a special insurance fund, which is the most important tool for minimizing losses in the event of loss of funds. It guarantees the repayment of the loan to the liquidity provider and returns the collateral to the trader.
The platform’s advantages:
◼️ leverage up to 5x
◼️ 5% of the profit from transactions in the form of WOW tokens is burned
◼️ a margin insurance fund
◼️ an APY-based hourly interest rate for liquidity providers
The Fulcrum platform was created in 2019 for tokenized lending and margin trading. It allows users to open short and long positions with up to 5x leverage without identity verification. Fulcrum is one of the few margin services where users are provided automatic rollovers with zero fees.
What is Fulcrum?
The platform uses special tokens called iTokens (margin loans) that bring the holders interest on their loaned funds. At Fulcrum, positions are closed using KyberSwap and a dedicated insurance company protects lenders from loss of funds.
The platform’s advantages:
◼️ no mandatory KYC
◼️ insurance from the creditors’ funds
◼️ the ability to connect more than 10 wallets
◼️ trading on BSC and the Ethereum network
Margin trading is something that has always been a powerful and instrumental tool in trading and the DeFi market should not be an exception. The opportunities that leveraged trading provides all participants of trading on DEXs are entirely to their advantage: traders can earn more and likewise, liquidity providers also earn more.
Certainly, a trader who is trading with a margin should have a proper risk management strategy in place to insure themselves against big loss of funds. That way, they can continue indefinitely using leverage to their advantage. However, beginner traders should first develop their trading discipline and trading strategy before tinkering with large leverage.
As demand for margin trading grows, all DeFi participants are expected to find further investment opportunities from new services entering the scene and more sophisticated tools to fine tune their margin trading.
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