Margin or Leverage trading is a process of trading the markets using borrowed funds instead of the assets that are owned by the trader alone. It is an aggressive form of trading where traders take more risk while expecting an additional reward. Hence margin trading allows traders to trade with more funds than they actually have in their account. In traditional markets, traders increase their bets by borrowing funds usually from their brokers. But in cryptocurrency trading, funds are often provided by other traders. They earn interest based on market demand for margin funds. Some crypto exchanges also offer margin loans to their users.
Leverage or Margin is typically represented in ratios or with an ”X” next to it. For instance, the notation of two times leverage would be 2:1 or 2x. It is crucial to know the risks involved in Margin trading. Just as your profits get magnified, there is a high risk of magnified losses too. Hence, having a clear knowledge on all the repercussions is vital before trading with leverage.