Here you are, sitting with CEX.IO Broker (or any other) trading terminal in front of you… Maybe curiosity brought you to this place. Maybe you decided to try your hand at derivatives. Or maybe it is time for you to amplify your trading gains using leverage.
For whatever reason you landed on broker.cex.io, it can be helpful to first figure out how you use the platform before diving into it headfirst. 🏊♀️
This guide will explain to you in a simple language how to start trading CFDs on CEX.IO Broker. From what is happening in the background to what metrics you need to watch – we will gradually walk you through it, step by step.
By the end, you will understand:
❓The How: how you get started with margin trading on CEX.IO Broker;
❓The Why: why numbers in the trading terminal work the way they do.
Plenty of examples, gifs, and images will familiarize you with CEX.IO Broker. So it’s OK if, at first, the trading terminal is a bit intimidating or confusing. By the end of this guide, you will be comfortable getting oriented on the platform. 😎
Feel free to skip sections you understand well. And go through everything if you are a beginner and things are new to you.
Leverage, Margin Trading, Derivatives, CFDs
Let’s first get the basic terminology down. Leverage, margin trading, derivatives, CFDs all share a common theme, but they mean different things.
We’ll briefly go through each term.
Leverage, in the most general sense, means using borrowed funds to increase the potential return of an investment. For example, financing a business with debt to help it expand more would mean deploying leverage.
Closer to home, you can use leverage when you trade. You borrow funds to open positions, larger than you could without these funds. As a result, what could have been your gain trading without leverage, gets multiplied by the factor of leverage you use.
Because you’ve not only utilized your own capital but also the borrowed capital to derive your gains, you increase the return on the investment of your own funds.
Easy so far! ➡️➡️
Margin Trading is a strategy that involves borrowing money from a 3rd party to open positions. In our case, CEX.IO Broker is that 3rd party that provides you a credit.
This credit is extended to you every time you open a position. The borrowed funds return back to the Broker when you close your position.
So, all margin trading involves leverage. But, since leverage means using borrowed funds for anything, not all leverage is margin trading. 💁🏻♀️
That’s quite clear! ➡️➡️
Derivatives are financial instruments whose value relies on (or derived from) some underlying asset. As the price of the underlying asset fluctuates, so does the value of a derivative.
Derivatives come in different types: futures, forwards, swaps, options, CFDs, and others. They all have different mechanics. Yet, the common feature of all these instruments is that you “enter into a contract” at a specific price of an asset and then become exposed to price fluctuations of that asset going forward.
The asset, by the way, can be anything that can be priced: Bitcoin, oil, S&P index, etc.
Some, but not all, derivatives are traded on margin.
CFD is one example. ➡️➡️
CFD (Contract for Difference) is an instrument allowing traders to trade in price movements of an asset without actually owning, buying, or selling that asset.
With CFDs, you can benefit from the asset’s price moving up and down.
If you expect the price to increase, you open a Long (BUY) position. If you turn out to be right, you make a profit. If the opposite happens – the price difference represents a loss. The vice versa is with a Short (SELL) position when you expect the price to decrease.
In that regard, trading CFDs is very different from the spot market where a digital asset actually gets delivered to you.
With CFDs, you do not need to time the market waiting for the right moment to start trading. All you need is to correctly anticipate the eventual direction of the price movement. We say “eventual” because, once you open a position, the price may move against you. But, if later it goes in the direction you’ve expected, you can close the position with a profit.
Read on for more details! ⤵️
Getting to Practice
To get on with practical stuff, the first thing you do to start trading CFDs is to fund your trading account. It is important to understand what these funds are and what they aren’t:
🔑 Deposited by itself, your money will not start bringing you more money. That is unless you open positions, the funds you’ve deposited will not start working for you. (for earning coins passively, you might want to check out staking, but this is a very different story).
🔑 These funds represent your collateral when you open positions. Since you use leverage – your own funds will guarantee that you’ll return the borrowed capital, even when the price moves against you.
🔑 The maximum size position you can open is your deposit times the size of available leverage. If available leverage is 10x, it means you can open a position 10 times larger than the size of your deposit (minus open fees, of course).
🔑 Once you open a position, a certain amount of your funds gets locked (serving the role of collateral). You can always withdraw from your balance the funds that are not tied in any positions, provided things are fine with your verification.
🔑 When you close a position, the funds used as collateral get adjusted to profit or loss the position has accumulated and then return to the balance, which can then be withdrawn.
You can fund your trading account with CEX.IO Broker in two simple ways: via a CEX.IO transfer or via a blockchain transaction. You press the green button “Make a Deposit” and choose which one you prefer.
Transfer with CEX.IO Wallet is the easiest and fastest option to fund your CEX.IO Broker account if you are a CEX.IO User.
Since both platforms maintain the same custodial wallet, moving your funds between them is nearly instant and free. This way, you’ll never miss a good opportunity on CEX.IO Broker while waiting for your money to arrive. 😜
An alternative way of depositing is via the blockchain. You send Bitcoin (or other currencies that we’ll add later) to the address displayed for you. After a sufficient number of conformations (3 for bitcoin), your funds will be credited to your trading account.
Note, however, it takes some time to get to three confirmations on the Bitcoin network – that speed we do not control. So make sure to factor in the wait time when you send funds over the blockchain.
With funds in your trading account, you are all set to open the CFD positions!
✅ From an Order to a Position
You trade CFDs by opening and closing positions. Unless you do that, your deposit will just sit on your account intact.
So what is a position?
A position represents an expression of a certain market commitment that you have. That commitment means you are entitled to the benefits it may bring and well as ready to accept the losses it may cause.
In the spot market, when you actually possess a digital asset, if you, for example, own 2 BTC, you have a long position of 2 BTC.
In derivatives and CFDs in particular, as you already know, you can have a position without owning, buying, or selling an asset. And you establish that position by locking some of your funds as collateral, as we explained above.
Let’s look at how a position comes to life in practice.
Say you have an idea where a price is heading in the next few hours and you want to open a position. To do that, you first place an order, which is literally your instruction to open a position.
This instruction can come in different forms. For example, you want the position immediately – so you place a market order. Or you want to open a position at a specific price or better – so you place a limit order.
You can see various order types available on broker.cex.io when you place them. Click on Green/Red buttons with prices on them to open an order form.
That’s how you do it:
A placed order is also called a “working order”. It is not a position yet until the order gets executed.
For example, if you placed a limit BUY order at a price significantly lower than the market, it will remain working until the price reaches the level or you cancel the order or it expires (if you chose the order to be valid till a specific time).
Note – a working order does not affect your balance and no open fee is charged until the order is actually executed.
But say your order was executed and you opened a position. Now you are in the game!
You can see a small open fee taken from your balance. You notice, your usable margin is no longer 100% because you’ve tied up some of your funds in this brand new position. These funds, by the way, are shown in your Used Margin.
All these numbers come to life, once a position is open! 👀
Here’s our DEMO account with a whopping 10BTC balance (you can play with DEMO on broker.cex.io however you want and add more demo BTC to your balance 👻).
We open a Long 1 BTC position with a market order, which immediately changes in the key indicators. The numbers will continue changing for as long as the position is open.
Check it out:
✅ The Numbers to Watch
An important thing starts happening when your position is open.
Depending on where the price moves – you will either see a green or a red number of FPL, which stands for Floating Profit/Loss.
Remember how we said that, while a position is open it can turn from money-losing to profitable and back multiple times? Your Floating Profit/Loss will show that.
So if you see a negative number – do not despair! Until you actually close the position, the loss does not become realized and things can change.
FPL is one number you watch when your position is open. Once you like what you see – you close the position, turning the accumulated gain into yours. 💰
Another important number is the Margin Level on top of the terminal. It is a key indicator that sums up the “state of affairs” on your trading account. Managing Margin Level helps you mitigate the potentially crippling losses from trades that did not go the right way.
Margin Level is the ratio between your Equity and Used Margin. The higher the Margin Level, the more funds are available to open new positions. You like that! 👍
If your position starts accumulating a significant loss, your Equity goes down. In turn, it lowers the Margin Level too. Lower Margin Level may indicate that the funds on the account are not sufficient to maintain a position open. You do not want that! 👎
If the Margin Level gets to 25%, a position is automatically liquidated to limit losses and to restore the Margin Level. But before that happens, when Margin Level reaches 75% or 50%, you get a margin call, which is meant to alert you about potentially nearing liquidation.
Getting a margin call you can:
1️⃣ Modify your position: close it, accepting the loss, or add a reasonable Stop Loss;
2️⃣ Add more funds to your account to boost up the Equity and, as the result, Margin Level;
3️⃣ Do nothing and hope for better (but already informed of what can happen).
Let’s go through an example. That way, you will make sense out of every number on the trading terminal. So next time you open positions with CEX.IO Broker, you know exactly what is going on.
Back to our demo 1BTC position, open with a market order placed at the price of $8,835.3 per one Bitcoin.
✅ Position Opening
Here are the screenshots of the indicators before and after and the newly established position.
Look how numbers are connected:
Things to notice when you open a position:
Pink markup: Your position size is 1BTC, even though the margin used to open it is 0.1BTC because the position has 10x leverage.
Turquoise markup: Your Balance has decreased for the amount of the Open Fee. The fee is calculated in the quote currency (USD in this case) and changed in the account currency (BTC). The open fee in the example is 0.05% applied to the position size.
Yellow markup: The unrealized profit of your position is calculated as the difference between the current price of the asset and the price at which the position was open, adjusted by the position size. It is also expressed in BTC.
Red markup: The Usable Margin is what’s left to open more positions. It is your Balance, adjusted to floating Profit/Loss and Used Margin. This amount changes with time as your FPL changes.
Margin Level: Your Margin Level (again, calculated as Equity divided by Used Margin) is looking good! There is plenty of value on your account to sustain the position currently open.
❗️ Important: It is important to keep in mind that since some amounts are calculated in the quote currency (USD) but charged in the currency of the trading account (BTC), the conversion and the Bid-Ask spread will have an effect on them.
For example, the open fee on the position of 1BTC is not precisely 0.0005BTC but a tiny bit more.
For that exact reason:
Conversion and Bid-Ask spread play into the calculation. The same goes for the Used Margin amount. And, of course, your P&L, also expressed in BTC – so the USD price difference undergoes the conversion back to BTC.
Though these differences are ever so small, it is good to understand their origin.
✅ Position Closing
Say the position had a good run and, eventually, generates a positive FPL. We want to close the position, turning the unrealized profit into the realized. For that, we simply press the “x” on the position and confirm that we want to close it.
Let’s see what happens with the key indicators when we close a position. Below are the screenshots taken directly before the position is closed and right after.
So what’s going on?
Things to notice when you close a position:
Green markup: You see how the position unrealized (floating) profit finds its way into your balance and now becomes the realized profit. With that, FPL turns into zero when the position closes.
Blue markup: Used Margin becomes zero as no positions are open. That means the Usable Margin is equal to Balance (and Equity) and the Usable Margin percentage is 100%.
⭐️And there you have it – the whole process from start to end, with profit! ⭐️
Notice how the profit of 0.00466391 BTC is 4.7% of the margin used to open this position (approximately 0.1BTC).
It is a 4.7% ROI (return on investment) on the position open for a few minutes!
The reason for such a high return is leverage. The entire 1BTC worked for us, even though we only used 0.1BTC of our own funds. The rest was borrowed from the Broker and returned when the position was closed.
4.7% ROI in minutes – quite powerful, isn’t it? Understand that leverage works in the opposite direction too, multiplying losses when the trade does not go your way – and you are one wise cookie!
Good job getting this far – you know a ton by now!
Margin Trading Costs
In this section, we’ll look at the costs associated with margin trading. There are direct costs – fees and commissions – applied to your positions. There are also indirect costs in trading – we’ll explain them in more detail below.
The good news is, the trading costs at broker.cex.io are one of the most competitive on the market. This way, you can plot your strategy, while keeping your costs optimized.
Let’s get into it!
In general, all fees and commissions charged in margin trading are direct costs. They exist because leverage, like any other type of borrowing, is not free. It gives you the opportunity to open (and benefit from) larger positions than you could without it. So, it comes at a price.
Whenever you use any margin trading platform, be sure to understand all fees. At CEX.IO Broker, you can always check them here: https://broker.cex.io/fees.
We do not charge deposit or withdrawal fees. Neither do we charge for closing positions.
But we do charge the open fee and the rollover. Latter is applied every 4 hours. That means, the longer you hold your position open, the more profit you need to make to cover the cost of keeping it open (rolling it over).
Any trading, not just at CEX.IO, has indirect costs. Understanding them will help you plan your strategy better. It is important to stress, however, indirect costs are not hidden fees. They are the specifics of the market that may affect the profitability of your trading. Know them, and you are steps ahead of many others!
Spread refers to the difference between the Ask and the Bid prices of an asset at a specific time.
When you trade, you buy at the Ask (slightly higher) and sell at the Bid (slightly lower). This is because somebody else (the Broker, the market maker, the platform) enables the market for you – i.e. gives you an opportunity to get on the side of a buyer or a seller at any moment you wish.
Here’s your spread:
In the case of CEX.IO Broker, we work with a set of liquidity providers, so our Bid and Ask are prices we quote from combining the available liquidity of those liquidity providers.
1) We do not incorporate a fee into the spread – it is rather a resulting spread from combining the liquidity on those markets;
2) We can keep the spread narrow, as liquidity greatly influences the size of the spread (more liquidity – smaller spread, less liquidity – wider spread).
The narrower the spread the better for you.
Because, when you open a position, you will need to close it eventually. Since you buy at a slightly higher price (at Ask) and sell at a slightly lower price (at Bid), the price of the asset needs to move enough to cover that difference before you start making profits with your position.
Making a significant effort to maintain tight spreads at CEX.IO Broker, we provide our users with a fair and transparent trading environment.
Liquidity represents the depth of the market, i.e. the volume of the limit orders within a narrow range around the market price. In other words, you can take the market price of an asset, add, for example, 0.1% on each side, and calculate the value of all limit orders that fall into that range.
Why is liquidity important?
Because every order that comes to the market needs to have enough “on the other side” to be fulfilled. A market order first “eats” whatever is available at the best price, then goes to the next best price and so forth.
In a liquid market, the market order can be executed at a price equal or almost equal to the price you see.
In an illiquid market, the resulting price may significantly differ from the market price when the order was placed.
The difference between the price at the moment of placing a market order and the price at which the order was executed is called slippage. A small slippage is fine and exists in many markets. A large slippage bites into your potential profits because your order was executed at a less favorable price to start with.
At CEX.IO Broker, we keep our markets liquid by working with liquidity providers. That means we have agreements with a number of large exchanges where orders, placed at CEX.IO Broker, can be executed.
In the trading terminal, you see the Order Book widget that represents the combined liquidity of these providers.
Here’s the Order Book:
Pulling the liquidity from the large providers, we help our traders execute both small and large orders while keeping slippages to the minimum.
At CEX.IO Broker, we understand the importance of keeping the costs low for traders, both direct and indirect. With our competitive commissions, tight spreads, and liquid order book, our traders can truly focus on their strategy while keeping their costs under control.
How do You Trade Successfully?
By now, you got the margin trading terminology down, you know exactly what happens when you open and close a position, and you have a good grip on your trading costs.
🤑And here’s a million-dollar question: how do you trade successfully? There is no bulletproof formula to it, but here are the important principles you need to keep in mind:
🤜 You cannot always win. Markets may behave irrationally, your analysis and intuition may at times let you down. Do not go into margin trading expecting you will always make profits. In fact, very few make profits consistently. That said, do not get bogged down with a money-losing position. It is about discipline and strategy.
🤜 Manage your risks, always. Do not trade with more funds than you can afford to lose. Practice plenty with DEMO. Start out gradually. And remember to use Stop Loss and Take Profit in your positions. Margin trading can be a thrilling ride, protecting your downside is very important.
🤜 Observe the market. Many patterns in the market repeat themselves and many indicators watched by analysts are self-fulfilling. Simple psychology explains it: if many people see an indicator showing the asset as oversold, they will buy, driving the price up. And vice versa.
🤜Educate yourself. Understanding the market and being able to anticipate where it’s heading is a craft. It takes time to learn. Luckily, there is plenty of information out there for free. Do not anticipate someone will hold your hand and do everything for you (beware of scammers!). To your own benefit, learn how to analyze the market and what to pay attention to.
And even then take everything with a grain of salt!
With that, you have plenty of knowledge to work with.
So go ahead! Start making moves and secure the bag!
👉 broker.cex.io 👈