CEX.IO News Education

Thinking about Trading on Margin? Here Is an Extensive Explanation of Margin Trading on CEX.IO

, April 30, 2018

In a traditional financial market, trading on margin means borrowing funds from a broker to purchase stock. It allows investors to buy more than they could have bought with only their own funds. On exchanges like CEX.IO, trading with leverage is also possible with cryptocurrencies. If you want to trade with more than you have – the option of margin trading fits you best.

Margin Trading on CEX.IO

Margin trading is an often-used opportunity for users on CEX.IO. And with our simple interface, it is easy to use for beginners as well as for professional traders. On average, around 1,500 customers trade with leverage to their benefit monthly. Users enjoy margin trading for the following pairs:
Here is a detailed explanation of margin trading opportunity on CEX.IO platform.

Margin Trading on CEX.IO: Why Use It?

Trading with your usual account.
In many cases, trading with leverage requires opening an extra account. This is not the case on CEX.IO. You can easily trade on margin with your usual account.
Several variants of leverage
CEX.IO users can choose how much leverage they use. The leverage ratio can be either 1:2, where half of the position is covered with your own funds, or even 1:3, where your funds cover 1/3 of the position.
Protected stop loss.
When opening a position, the system reserves a part of the order book. This is done to guarantee position closure at a rate not worse than the determined stop loss.
Choosing collateral currency.
When opening a position on CEX.IO, users can choose the currency that will be taken from their balance. For instance, one can use BTC or USD for a BTC/USD position.
Automatic borrowing and return of funds.
The needed funds are automatically applied by the system when you are opening a position. Similarly, they are returned automatically when the position closes.
Automatic position closure.
If the market moves in the direction opposite to what you expected, the system will automatically close the position before the rate reaches the stop-loss price.
Advanced risk-preventing mechanism.
Our unique technology is a risk-prevention system. It is set to guarantee the user’s balance does not go negative. So, you won’t lose more than you are ready to.

How to Use Margin Trading on CEX.IO

In essence, margin trading is an opportunity that allows users to benefit both from price falls and price increases. This is enabled by short and long positions. Both options are available on our platform. So, here are two life-hacks for you on how to use margin trading correctly.

Long Position: will be profitable if the price increases

Long positions are profitable when price increases. To put it simply, you buy crypto at a low price and sell it at a higher one. So, let’s assume a situation where you see the price of Bitcoin growing. You have $10,000 and would like to try margin trading. The price of Bitcoin at the moment is exactly $10,000. Now, you open a long position with 3 Bitcoins. The leverage will be 1:3, which means you will be borrowing $20,000. The price of Bitcoin goes up, and now it reaches $15,000. You sell those 3 Bitcoins for $45,000. After this, you give back the $20,000 you borrowed before. Now, you have $25,000, which means $15,000 profit, and after the deduction of fees, you get the net income, which is higher than it could have been without the margin. Using only your funds, you would have earned just $5,000. You can also open a long position using the Bitcoins available on your balance. In this case, the whole process involves converting your Bitcoins into dollars. After position closure, the funds are converted back into BTC, which the user will receive.

Short Position: will be profitable if the price falls

While trading on margin, it is also possible to earn profit when the price falls. This is called a short position. To explain it simply, you sell crypto before the price falls and buy it back again when the price is low. Now, let’s pretend the price of Bitcoin is falling. You have $10,000. Currently, Bitcoin is priced at $10,000, and you believe it will fall soon. So, you leverage yourself at 1:3 and borrow 2 Bitcoins. Now, you sell those 2 Bitcoins, receive $20,000, and get the total of $30,000. After the price falls to $5,000, you decide to close the position. You need to return 2 Bitcoins, and you buy them for $10,000. Now you have $20,000 left. The fees will be extracted, and you get the net profit, which is higher than it could have been without the leverage. Here, opening the position in BTC is also possible. In this case, the loan is also in Bitcoin. This means that when the position is closed, the loan will be paid back in BTC. As the collateral currency is Bitcoin, fees are deducted in this currency, and you get the rest of your funds in BTC. *Please note that both situations are hypothetical and do not consider the associated fees. Still, it becomes clear that the potential profit earned from margin trading is higher than it would be when trading with your personal funds only.

Margin Trading Fees on CEX.IO?

On CEX.IO, users deal with two types of fees when trading with leverage: Open fee – charged while opening a position. Rollover fee – charged if the position is prolonged. It is calculated in the collateral currency at the current price. The open fee is deducted once when you set up a position. Then, every 4 hours, users are charged a rollover fee if the position is still open. The first 4 hours of a new position are not charged. Note that a position should be closed within 360 days of when it was opened. You can get the information about the actual fees charged when trading with leverage in the Margin Trading Fees tab.

Is This a Risk-Free Activity?

As with any other activity associated with cryptocurrency trading, margin trading is very risky. With our risk-prevention system, we can guarantee that you will not have a negative balance. However, as the cryptocurrency market is very volatile and prices can change rather fast, the outcomes of margin trading are not always what the customers expect them to be. Below, you can find some of the reasons for why such situations may happen.

Specifics of Margin Trading on CEX.IO

The primary principles of margin trading are often similar for various exchanges. However, CEX.IO has developed a specific system that ensures higher standards for risk-prevention activities.

Margin Trading and Order Book

Margin trading is based on the order book. When a position is being opened, the exact amount is reserved on the market. So, for success with margin trading, you need to analyze the available orders before opening a position. In addition, if you see an order that fits your requirements for closing a position, and someone else has already placed a smaller market order, the rest of the order will be used to cover your position. The second-best order will be used to cover the rest of your position. This is called price slippage. In short, when a position is closed, it is covered by the best market orders available, so the real opening/closing price can be different from the estimated one.

Why Is the Position Closed?

Users may close an open margin position on their own or wait until it is closed automatically by the system. There are several situations that could trigger such an outcome:
  • The price has reached the stop loss price, so the position was liquidated automatically.
  • The funds remaining on balance are insufficient to cover the rollover fee.
  • The market situation has triggered our risk-prevention mechanism to ensure there is no loss. Here, liquidation may come when a few large, new orders appear in the order book, which may cause the current price to surpass the stop loss price. In this case, the position will be closed.
  • In some situations, the position may even be closed almost instantly after it is opened. Such cases are rare but still take place if the difference between the open and the stop loss price is too small.

Closing Positions on Margin Automatically

  1. A position can be closed automatically before reaching the stop loss price in some cases. This may happen if the price moves in an unfavorable direction too fast and there is a high risk of crossing the set stop loss price.
  2. A position may be closed partially. In some cases, a position may be closed by separate market orders. This often happens when the price approaches the liquidation rate (stop loss).
  3. The automatic closure may also occur before the price reaches stop loss. This can happen when the system cannot reserve the necessary volume in the order book at the required rate. So the system closes the position at the best rate possible.

Setting the Stop Loss Price

When opening a position, users assess the situation on the market on their own. They are also allowed to set their stop loss price. Usually, the default stop loss price in the UI is automatically calculated by the system to ensure that the user keeps around 20% of the position. Customers are also allowed to set the stop loss price higher or lower, but this increases the risk of a higher loss. When setting stop loss manually, it is important to remember the amount of funds the user may lose as well as the difference between the open and stop loss price. If the difference is insignificant, consider that for cryptocurrency trading a price change of 5% in a short time is quite common and the position may be closed automatically after being opened.

How do I Learn if My Position is Profitable?

Tracking profitability of your position is one of the most important tasks. It helps to define when a position should be closed to keep your profit, or at least to avoid loss of funds. On CEX.IO, you can use the P/L column to achieve this. It reflects the correlation between profit and loss. This indicator shows how profitable the position is under current market conditions.
  • If the indicator shows a negative number (less than 0) – the position is not favorable at the moment and is not profitable.
  • If the value is positive (more than 0) – the position is profitable and can be closed for your benefit. Here, it is important to remember that the indicator is approximate and the situation can change during position closure.
Ultimately, you can check on the color of the indicator. If it is red, the position is unprofitable and would incur a loss if closed. A yellow color indicates that the position may be profitable. A green color shows that the position has the possibility of earning a profit. Still, it is important to remember that the situation may change before you make a final decision. Here, we would like to make an important note and draw your attention to the fact that the P/L indicator is only approximate, and market conditions may change at the moment you close your position. So, it is advisable to take a look at the order book and decide whether your position will be profitable or not.

Settlement Questions

On CEX.IO, there are no opportunities for settling positions. On the traditional financial markets, settling positions is a common practice. The major principle applied here is that the customer covers the borrowed funds from their own balance and the position remains open. At the moment, this option is not available to our customers as it carries higher risks for users. Still, if there is high demand for it, we may consider adding this feature. We hope this detailed guide on margin trading will help our users gain additional benefits from trading crypto with leverage. Still, one should always remember that cryptocurrency trading is a risky activity, and making accurate predictions is complicated. It is important for users to understand that the gains may not always meet expectations.
Disclaimer: Information provided by CEX.IO is not intended to be, nor should it be construed as financial, tax or legal advice. The risk of loss in trading or holding digital assets can be substantial. You should carefully consider whether interacting with, holding, or trading digital assets is suitable for you in light of the risk involved and your financial condition. You should take into consideration your level of experience and seek independent advice if necessary regarding your specific circumstances. CEX.IO is not engaged in the offer, sale, or trading of securities. Please refer to the Terms of Use for more details.




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