What Is Margin Trading?
At Gate, investors can use their crypto assets as collateral to borrow great sums of capital for trading. Investors must repay the loans within the time limit. Margin trading is similar to securities margin trading in the stock market. Investors use leverages to amplify profits while also amplifying risks.
Margin Trading vs. Futures Trading
| Differences | Margin Trading | Derivatives Trading |
|---|---|---|
| Leverage | 3×–20× | 10×–125× |
| Risks | Medium | High |
| Underlying Assets | Digital Currency | Cryptocurrency contracts, options, etc. |
How to Trade with Leverage?
Example:
Client A is bullish on the BTC market over the next month and decides to use Margin Trading to increase potential returns. He has 10,000 USDT in his account and wants to borrow another 10,000 USDT to gain 2× leverage.
First, he transfers the 10,000 USDT from his Spot Account to his Isolated Margin Account as collateral. (collateral: also known as a deposit, it is the amount investors must provide to secure a leveraged trade. Borrowing is only possible after transferring margin.)
Then, by enabling the Auto Borrow option, Client A can automatically borrow at the time of order placement, or manually click the Borrow button to borrow funds. Client A borrows 10,000 USDT. He buys 4 BTC at the price of 5,000 USDT each. Later, the BTC price rises to 10,000 USDT.
Assuming an average daily interest rate of 0.02% (interest is deducted hourly during the borrowing period), and a borrowing duration of 25 days, Client A sells all BTC and repays the loan. Compared to trading without leverage, Client A earns an additional profit of 9,950 USDT.
Profit Comparison
Margin Trading Profit: [10,000 USDT (Initial Assets) + 10,000 USDT (Margin Loan)] / 5,000 USDT (BTC Buying Price) × 10,000 USDT (BTC Selling Price) - 10,000 USDT (Initial Assets) - 10,000 USDT × (1 + 0.02% × 25) (Margin Loan & Interest) = 19,950 USDT
Non-Margin Trading Profit: 10,000 USDT(Initial Assets) / 5,000 USDT(BTC Buying Price) × 10,000 USDT(BTC Selling Price) − 10,000 USDT(Initial Assets)= 10,000 USDT
From the formula, it is clear that using margin trading yields 9,950 USDT additional profit compared to non-margin trading.
If Client A is bearish on the BTC market over the next month, he can transfer 10,000 USDT (equivalent to 2 BTC at a price of 5,000 USDT) into his Isolated Margin Account as collateral, and then borrow 2 BTC, which he immediately sells for 10,000 USDT.
If the market drops as expected and BTC falls to 2,500 USDT, Client A can use 5,000 USDT to buy back 2 BTC and repay the loan. At this point, Client A’s net total assets are 15,000 USDT (excluding interest and trading fees).With BTC losing half its value, Client A still manages to earn a 5,000 USDT profit, achieving a 50% return. He profits even in a bearish market. Client A concludes:
By using margin in spot trading, one can amplify returns when the market moves in the predicted direction. Even in a downtrend, profits can still be made. However, if the market moves against the prediction, losses will also be amplified accordingly.
Gate reserves the final right to interpret the product.
