Margin Trading refers to a type of trade in which users borrow a certain amount of digital coins from a third party, so as to open a position (long or short) that is larger than the balance in their account.
For instance, if you have 10 USDT in your account and you borrow 20 USDT, you can open a position with 30 USDT. Essentially, it can bring larger profits to successful traders.
1. How does margin trading work on KuCoin?
1.1 Assets transferring
Before proceeding, the assets need to be transferred to the margin account so that you can borrow and trade in the margin market.
1.2 Lending and Borrowing
KuCoin opens lending and borrowing markets to users.
Lenders provide certain coins with set interest rates and terms. There are 3 terms on KuCoin: 7/14/28 days.
Borrowers can choose an offer to leverage their initial assets up to 9 times, and repay at any time within the term. The interest is counted by hours.
1.3 Opening positions
Borrowers can trade with their principals and loans in margin trading.
It is possible to open both long and short positions. A long position refers to the price of coins that is assumed to increase, while a short position refers to the opposite.
There are multiple trading pairs available in the margin market. Users can open several positions with relatively small amounts of investment capital.
API trading is also available.
2. Benefits and risks
The largest advantage of margin trading is increasing the size of your orders, which can boost the profits from a successful trade with a little interest.
It is also possible to borrow a coin with another coin, for example, borrow USDT with ADA, and transfer USDT if the debt ratio is lower than 60%.
Besides, KuCoin offers extremely competitive fees to users.
Margin trading increases users’ profits as well as increasing losses in the same way. The risks usually depend on the leverages and market prices. It is important to set taking profit and stop loss orders.
3. Strategies and suggestions
3.1 Long buy
If you think the coin’s price will increase, you can borrow USDT and buy the coin, then sell it at a higher price.
3.2 Short sell
If you think the coin's price will go down, borrow it and sell the coin for USDT, then buy it back to repay after the price drops.
Remember to control the capital fund and leverages, as you need to know how much risk and losses you can take.
The entry price of the order is important, and so you should not trade in a rush. Learn to set take profit and stop loss orders.
Controlling the debt ratio by transferring more assets to the margin account or repaying is a useful way to avoid forced liquidation.
Margin trading is a profitable and popular tool in the crypto world, knowing how it works and how to use it properly, we can earn more than the initial investment can bring.
However, you should not ignore the risks. Many traders can become greedy by seeing the climbing profits. It is suggested to set targets of both profits and losses.