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HomeEducationMargin trading: how it works in BBOD

Margin trading: how it works in BBOD

In this article you will find all the content from our second trading tutorial and learn about margin trading and how it works in BBOD. It took place on our Telegram group last Thursday 23-Jan. The community members had the chance to learn what margin trading in crypto is, how does it work, types of margin, long and short trades, margin calls/liquidation and more from our Head of Africa: Adebayo Juwon.

What is Margin Trading in crypto?

Crypto margin trading doesn’t have to be complicated. The basics of margin trading are relatively straightforward, so we’ll cut through the noise. Put simply: a crypto margin trade allows traders to “borrow” capital in order to access increased buying power and open positions far larger than their “real” account balance.

margin-trading-leverage

Margin trading allows you to go long and short positions by 2x, 10x or even 100x (depending on the platform) without having actually holding the capital required to open such positions. You have up to 50x on BBOD which means you potentially can earn fifty times more compared to a regular spot trade.

However, the crypto markets are highly volatile. The price fluctuations exhibited by them make it possible for crypto traders to make profits in both bear and bull markets through Bitcoin margin trading.

Types of Margin Trading

  1. Isolated Margin: traders are allowed to hold both long and short positions. The risk is evaluated separately.  If get liquidated, the trader will only lose his position margin. This means the maximum loss of the trader is the margin.
  2. Cross Margin: BBOD uses this type of margin. All the available assets will be seen as margin. A trader will be liquidated only when the loss exceeded the account balance . To avoid using all funds as collateral traders can manually isolate a part of their margin by transferring a specific amount of funds to their Spot Balance. This allows them to secure a part of their funds in the event of a liquidation.
margin-trading-bbod

Advantage: This mode is of high anti-loss capability. It is convenient to process and to calculate the position, thus it is often used for hedging and quantitative trading.

Understanding Margin Calls and Liquidation. 

If you open a trade and the market moves against you, it may happen that the exchange will ask for more collateral in order to secure your position or forcibly close the position.

Most exchanges will notify traders via email, but it’s important to actively monitor your margin levels.

liquidation-email-bbod

Example: Let’s assume that your initial equity is 1,000 TUSD. BBOD defines initial equity as your equity at the moment when you opened the position. When the loss on the position is greater or equal 1000 – 300 = 700 TUSD, your equity will decrease and will be equal or lower than the maintenance margin (300 TUSD). At this moment BBOD risk engine will force-liquidate all your positions.

What is Maintenance Margin?

Maintenance margin represents the amount of equity the trader must maintain in their margin account in order to keep the position open.

Going Long and Short

When you open a crypto margin trading position, you have the choice of “ short/sell” or “ long/buy.”

When a trader thinks the price will rise then he/she takes a long position. Going short, or “shorting,” is the opposite. A trader will open a short position if he believes the price will fall in value. Traders that seek to profit from falling crypto prices use shorting.

How to Go Long on BBOD: 

Go to the Market Watch and select your preferred instrument.

market-watch-bbod

In Order Execution, specify the order type, amount, and price. Place an order by clicking ‘Buy’.

Margin mentioned here right above the sell button signifies the margin required to open a position. This is 2% for BTC or ETH contracts. This means, if you want to open a 5000 TUSD position, you can open it using only 100 TUSD. (50x leverage / 2% Margin).

Stop loss places a market order when a certain price condition is met. So it works like a limit order, in that it goes on the books, but it executes like a market order once that price is reached.

If you want to close the position at your desired price, you should select ‘Limit order’, specify the price, and click ‘Sell’.

Settlement of unrealised Profits and Loss

Exchanges use different settlement periods which ranges from daily, weekly, monthly, quarterly or annually.

At BBOD daily Blockchain settlement occurs (at 00:00 UTC) and lasts for about 15 minutes. During this time blockchain balance is updated according to your platform balance.

Crypto Margin Trading Strategies

Margin trading is a high-risk investment strategy that depends on the short-term market movement. Compared to traditional securities or forex markets the crypto market is very volatile . 

Here are a few tips and strategies on how to be a successful margin trader:

Progressively increase trade size: As a margin trader, it’s best to develop a firm understanding of the practice by starting with smaller position sizes and lower leverage.

Understand order types: Margin traders often use combinations of order types such as stop loss and take profit in order to lower risk and open complex positions. These order types can assist by setting specific profit or loss targets and automatically closing positions.

Divide your positions: You can lower your risk by spreading a position into separate portions. Creating a ladder of take-profit levels allows traders to capture profits incrementally.

Pay attention to fees and interest: When you open a leveraged position you have to pay interest on the capital you borrow. Margin trading Bitcoin and other cryptos incurs ongoing fees that can quickly cut into your profits. You can take advantage of BBOD leveraged zero-fee trading to avoid paying fees.

Set up well defined goals and lower your risk: You should follow a concrete risk management strategy. This strategy should establish a clear profit goal and you should stick to this goal. Stop-loss levels and adhering to an exit goal are very important.

“And the last and the best advice: don’t be greedy.”

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