How to start Margin Trading on BingX? How does it work?

What is Margin Trading – Keywords to Know, Pros and Cons

Trading cryptocurrencies is probably one of the most popular and fun ways for newcomers to the field. However, it is far from risk-free. Trading itself is a suitable job that requires skills, experience, education and more.

So jumping right into the crypto world and starting trading without any experience is like playing football with a professional footballer without any experience on the pitch. Many newbies, not knowing what the implications of this decision are, even decide to trade on margin in the cryptocurrency world.

While it may seem promising at first glance, using margin can become very dangerous if the trader has no trading experience. Why? To answer the very simple but broad question of why margin trading is risky, let’s first define what it is and how it works.

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How much is the security deposit?

Margin, in its simplest definition, is the use of borrowed money (usually borrowed directly from a broker or exchange) to trade or invest. This is usually provided by the platform itself, which has traditionally divided accounts into cash accounts, where users can only invest or trade their money, and margin accounts, where traders are eligible for loans from exchanges.

Margin can then be considered as collateral that users deposit with an exchange or broker. This is to help offset the risk that the platform takes by offering loans to users who then use it to go long or short financial assets. Therefore, if a user of a margin account

Looking at all this, if a broker requires 60% of the margin account to be opened and the trader wants to buy $10,000 worth of stock, the initial margin, the sum of the deposits to the account, will be $6,000.

A trader or investor usually considers a primary objective, extending their returns. Margin trading allows traders who do not have a lot of capital to put more money into their trades. Therefore, this leverage is known to help increase profits in case the asset price moves in the desired direction. However, this also means that, if the opposite is true, losses are also amplified by leverage (Tretina, 2022).

Margin is very popular mainly in financial markets that do not have high volatility. With low volatility, margin ensures that these movements make enough profit (or loss) to make them worth trading.

However, when it comes to the cryptocurrency market, volatility is huge, which means that using high leverage/margin can lead to significant losses, but also gains. For example, a daily change of 10-15%, which is very common in the cryptocurrency world, with a leverage of 5:1 can result in a gain or loss of 50-75%, depending on the trade. That’s nothing compared to a whopping 100:1 or 250:1 profit margin, which in the cryptocurrency world is often described as 100x or 250x.

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Basic Phrases for Margin Trading

While we have briefly explained what initial margin is, there are other important concepts related to margin and margin trading, which is why we briefly describe them here:

• Minimum Margin – The minimum margin is the minimum amount required by the broker as upfront funds inserted into the account. Typically this is $2,000 or 100% of the purchase price, whichever is lower. However, this is entirely broker based, which means it could be over $2,000 if the broker decides. The minimum threshold is set by the Financial Industry Regulatory Authority (FINRA) regulator, which means it cannot be lower than $2,000.
• Initial Margin – As mentioned above, Initial Margin is the percentage of the purchase price that a trader will cover when trading on margin with his own funds. While this is again broker related, investors can borrow up to 50% of the initial purchase price (what is a “margin trade, undated”).
• Maintenance Margin – is the percentage of funds a trader needs to maintain in a margin account at all times when a margin position is opened. Depending on the broker, this amount can be at least 25%, but can be as high as 30-40%. The reason for the maintenance fee is to deter irresponsible trading and to ensure that investors do not get into excessive debt, in which case a margin call ensues.
• Margin Call – A margin call is a situation where the overall equity of the margin account is too low to meet the maintenance margin. If this happens, the broker sends a notification to the account holder requesting that more funds be added to the account. If this does not happen, the broker can sell the different positions held in the account without the approval of the account holder to cover the loss. However, since brokers have the option to close positions, traders are often worried about margin calls as it can lead to closing positions at unfavorable prices (FERNANDO, 2022).

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The benefits of margin trading

Obviously, one of the biggest benefits and main reasons for any investor or trader looking to use margin is to increase potential earnings. Leverage gives traders more purchasing power than otherwise, which means they can make more money in dollars.

Some professional investors and traders also use these services to hedge positions or diversify their portfolios, however, this is a more complex topic. Other benefits of margin include flexibility, as margin accounts do not have a fixed repayment schedule. The loan only needs to be repaid after the stock is sold, unless the maintenance margin requirement is affected. In this case, a margin call ensues.

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Risks of Margin Trading

Margin trading definitely does more harm than good, especially for those new to the world of trading and investing. There is no doubt that amplifying losses is major, as traders or investors who trade on the wrong side and use margin are now suffering much higher losses than they would otherwise (INVESTOPEDIA Team, 2022).

Another disadvantage is the margin call itself. If the account value drops too low, the investor or trader needs to put more money into the trading account or risk closing the trade. This means that traders or investors need to have their capital ready in case the market moves against them.

This leads to another disadvantage, known as forced liquidation. A liquidation occurs unless the trader or investor is able to cover the losses incurred by margin trading and they receive a margin call that they cannot fulfill. This gives the broker the power to close positions on the trader’s behalf and can increase losses from margin trading.

Last but not least, since margin trading is essentially a loan from a broker, there are interest charges associated with it. Margin interest is usually between 5-12% regardless of how well a trader is doing. This is definitely a cost that traders wishing to trade on margin need to consider.

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Short selling and margin trading

For many, margin trading is very similar to short selling in that users of a platform borrow money from a given platform. However, the overall mechanics of short selling and margin trading are quite different.

Short selling means borrowing stock from a given brokerage firm. The general intent of short selling is to buy back the stock at a lower price. If the price subsequently falls, short sellers make money because they buy the stock at a lower price. However, if it doesn’t and the stock rises, the trader loses money, which in this case can theoretically be infinite, as the stock can rise to “infinite”.

This is the main reason why short selling is considered more risky than margin trading. With margin trading, traders do not lose more than they risk investing and borrowing. With short selling, traders will receive margin calls over and over again if the shorted stock continues to rise (Bauman, 2022).

While margin trading is very popular among cryptocurrency traders, it does not mean that traders use it correctly. It is very difficult to trade alone, and adding more leverage and borrowing assets makes the overall level of risk higher. Having said that, experienced investors and traders with proper risk and money management can benefit from using these tools and increase their dollar-denominated profits.

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What is BingX?

BingX is a global digital asset, spot and derivatives trading platform, providing a safe, reliable, user-centric, open ecosystem with intuitive social trading capabilities to enrich the entire cryptocurrency industry. BingX is also the world’s first leading cryptocurrency community trading platform, and has developed into a global diverse team with experts in various fields, committed to its mission of promoting open value transfer, and using innovative social trading solutions to provide security Trusted and convenient digital asset trading service.

BingX was developed to enrich the cryptocurrency industry. It provides participants with a safe, user-friendly and reliable platform to trade their best assets such as AX, DAO, Cosmos and Chilliz.

In the countries and regions where BingX operates, it has registered or obtained a financial services license recognized and regulated by the local government, and obtaining licenses in Canada and the United States is a huge leap for BingX, the company is in Canada, Hong Kong, the United States, Australia and Taiwan. With offices, BingX provides secure, reliable, and convenient digital asset trading services and fully open social trading online finance to more than 100 countries and regions around the world.

At the same time, the ecological security and trading environment of BingX exchange are exerting efforts to continuously complement the product system and create a diversified product system. At present, more than 300 currencies have been launched in spot trading, with more than 100 contract targets, and selected mainstream cryptocurrency assets. Fully meet the needs of users. BingX is also the first trading platform to connect high-level traders with ordinary users. More than 3,000 of the world’s top professional traders have settled in. Currently, there are more than 20,000 copy traders, with a total daily trading volume of 5,000.

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How BingX differs from other trading platforms

By joining the BingX community, you have access to many new, innovative and exclusive features not found on other cryptocurrency trading platforms:

• Spot grid copy trading: BingX users can use their own statistical trading technology to buy low prices and sell high prices on a fixed grid within a specific price range.
• A series of popular spot transactions: BingX has updated a series of new coins on the instant exchange platform, providing its valued users with a powerful trading solution.
• BingX allows access to Binance’s API. This opens up a new perspective on the cryptocurrency social trading paradigm: an approach designed to increase the influence of high-quality traders while accurately reflecting their actual cryptocurrency trading abilities.
• Copy trade Pro: BingX officially released the “CopyTrade Pro” service, which aims to find and serve excellent traders to improve the social trading experience of the entire crypto market. This property currently attracts a large number of excellent traders and investors.

BingX continuously optimizes the documentary system and user experience, deeply cultivates the community word-of-mouth marketing strategy, and plans for legal and compliant operations, and strives to become the world’s first preferred documentary transaction network, providing users with the ultimate product and service.

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Achievement of BingX Cryptocurrency Exchange

BingX has achieved important milestones in asset security and product functions. BingX has always adhered to the principles of platform information security and user privacy, and continued to invest a lot of manpower and technology to protect the security of user assets. With the world’s leading technology and solid top security technical strength, BingX has demonstrated perfect A more complete “zero accident”, continuous optimization and improvement of a more complete transaction security risk control system.

This helps to gain global recognition and the attention of the TradingView community. BingX’s Feed social function is an innovative social trading unit. “BingX” launched the “Feed” social function to provide a platform for global cryptocurrency investors to share in real time. Trading ideas and discussing the latest market trends.

As an added advantage, BingX has successfully expanded its presence in new markets as diverse as Europe and Asia, all thanks to its partnerships with numerous fiat gateway functions, including Paxful, Coinify, and AdvCash. BingX allows users to buy or trade cryptocurrencies from major exchanges while providing a single system to meet the needs of all users.

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Conclusion

BingX attributes its trading perspective as one of the best crypto trading/trading platforms to the achievements and recognition of its loyal fans and customers. In the future, BingX will set better milestones by developing infinite possibilities and enhancing existing functions, while continuing to enhance brand influence and add more value through new innovative products and optimized user experience.

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