Bitcoin Margin Trading Guide & Best Exchanges (2021 Updated)

What if you could leverage your long and short positions on Bitcoin or other cryptos by 2X, 10X or even 100X, without having actually to hold the capital required in order to open such positions?

Welcome to our crypto margin trading guide. In this guide, you will learn what margin trading in Bitcoin and cryptocurrencies is, how does it work, top exchanges enable margin trading, and most importantly – you will learn must-read tips before placing even the smallest margin position.

Quick Navigation:

• Bitcoin Margin Exchanges
• How to Short Bitcoin?
• Must-Read Margin Trading Tips
• Costs and Risks of Crypto Margin Trading

What is Bitcoin Margin Trading?

Bitcoin margin trading, in simple words, allows opening a trading position with leverage, by borrowing funds from the exchange.

For example, if we opened a Bitcoin margin position with a 2X leverage and Bitcoin had increased by 10%, then our position would have yielded 20% because of the 2X leverage. With no leverage, it would have been only a 10% ROI.

Margin leverage can also be 25X and even higher, despite the risk, the same position as described above would have yielded 250% (instead of 10% with no leverage).

How does Bitcoin margin trading work?

In most cases, the exchange provides loans to the traders so they can enlarge their capital to be used for margin trading. This way, traders can open positions with high leverage. The exchange doesn’t have many risks since every position has its liquidation price, which is based on the level of leverage.

Best Bitcoin & Crypto Margin Trading Exchanges

Exchange	Pros	Rating
FREE $100 Binance Futures	Binance-branded product High trading volume and liquidity Industry-Leading Security (SAFU insurance fund) Futures & Perpetuals. Max margin 125x	98 Read review	Visit site $100 voucher
10% OFF BitMEX	Veteran exchange – trading since 2014 User-friendly interface High liquidity and trading volume for perpetuals and futures Futures & Perpetuals. Max margin 100x	97 Read review	Visit site 10% off fees
$2K Bonus Phemex	Sufficient cryptocurrency trading pairs and liquidity Intuitive and easy-to-use interface Quick order execution engine and a secure platform Futures & Perpetuals. Max margin 100x	96 Read review	Visit site Up to $2K Bonus
Bybit	Great UI/UX, extremely intuitive platform Highly responsive support team Reliable and highly-secured platform Perpetuals. Max margin 100x	96 Read review	Visit site
Huobi Futures	Simplified trading interface with a variety of features, veteran exchange One stop shop for trading futures, options, and perpetual swaps An abundance of trading pairs to choose from Futures, Options & Perpetuals. Max margin 1000x	96 Read review	Visit site
50% BONUS PrimeXBT	Not limited to crypto: Includes FX, commodities, indices and more Advanced trading tools, fully customize your trading dashboard Safe to trade: So far, never been hacked Futures & Perpetuals. Max margin 100x	91 Read review	Visit site 50% Deposit Bonus (code: POTATO50)
Kucoin Futures	User-friendly interface with seamless navigation across the board Security and stability of KuCoin Lite version available Futures & Perpetuals. Max margin 100x	86 Read review	Visit site
ApolloX	Intuitive trading interface Sufficient order types Liquidation insurance fund Perpetuals. Max margin 100x	85 Read review	Visit site
Delta Exchange	Simple and intuitive trading interface Variety of different cryptocurrencies and trading pairs Both traditional futures contracts and perpetual are available for Bitcoin Futures & Perpetuals. Max margin 100x	85 Read review	Visit site
BaseFEX	User-friendly trading interface Large variety of cryptocurrencies available for trading 24/7 Live Chat support Futures & Perpetuals. Max margin 100x	83 Read review	Visit site
Poloniex	Veteran exchange – trading since 2014 Margin variety, Bitcoin perpetual futures User-friendly interface, great UI/UX Derivatives. Max margin 2.5x	83 Read review	Visit site
Plus500	Well-known and regulated CFDs exchange Great option for beginners: Demo account available Industry-Leading FX brand CFDs. Max margin 30x	82 Read review	Visit site
Currency	Not limited to crypto: tokenized shares available Intuitive trading platform with splendid UX Regulated exchange (Gibraltar licensing) Derivatives. Max margin 20x	81 Read review	Visit site
Bityard	User-friendly interface Quick registration process Excellent customer support Perpetuals. Max margin 100x	81 Read review	Visit site
PrimeBIT	User-friendly interface and intuitive design Very high leverage – 200X Responsive customer support team Perpetuals. Max margin 200x	79 Read review	Visit site
Bitfinex	High volume & liquidity Variety of coins and base assets Veteran exchange – trading since 2012 Derivatives. Max margin 3.3x	77 Read review	Visit site
Kraken Margin	Comparatively low fees Variety of position options and order types: high liquidity Trusted US-based exchange – trading since 2011 Derivatives & Futures. Max margin 5x/50x	73 Read review	Visit site
XENA	Low latency for fast order placement and response time Advanced trading indicators Competitive fees Perpetuals. Max margin 100x	71 Read review	Visit site

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How to Short Bitcoin and Other Cryptocurrencies?

Want to make gains while Bitcoin price is decreasing? It’s possible. A short position on Bitcoin basically means that we believe in a coming-up drop in the price of Bitcoin. Technically, short positions work by selling the base asset first, in this case, Bitcoin, and then later buying it. You don’t have to worry; the exchanges do this process automatically for us.

The second role for shorting Bitcoin is the option to hedge a cryptocurrency portfolio. For example, if the crypto portfolio consists of 5 Bitcoin and we want to hedge against the risk of a possible Bitcoin’s decline, a 10X leveraged short position could be opened, and it would be equivalent to 40% of that Bitcoin portfolio.

To open the position, the amount required is only a tenth of it (10 times leverage). That means that we need to hold only 0.2 Bitcoin on the margin exchange in order to hedge 40% of a portfolio valued 5 Bitcoins. Another advantage is the fact that only a small amount is stored on the exchange itself. As you might notice, from security reasons, it’s better to store the least amount possible on crypto exchanges.

Margin Trading Tips: Read Before You Trade

Since margin trading is risky, hence, it’s not recommended for beginners in crypto trading, we had gathered some must-read trading tips:

Always start trading with small amounts: First-day margin trading? then always start small. Get the necessary confidence you need before jumping into the deep raging water of the leveraged trading.

Don’t go all-in at once: Unless you’re sure about your trading skills, it’s better to divide your position into portions, and create a ladder of prices. This way, you can reduce the risk while averaging down the entry price of the position. The same is true for taking profit. You can set-up a ladder of take-profit levels.

Understand fees and liquidations: Always know how much you are paying for fees and what type of fees you are paying. Trading on margin carries ongoing fees, make sure they don’t eat up your profit. The same is true for the liquidation price; you should know that number in case the position is reaching there.

Risk Management: When trading on margin, set clear rules of risk management, beware of excessive greed. Take into account the amount you are willing to risk, keeping in mind that it can be lost entirely. Set levels for closing positions, taking profit levels, and the most important – set up stop-loss levels.

Price manipulations and short/long squeeze: In an unregulated market like Bitcoin, it’s not rare to see occasional short and long squeezes. When the number of short or long positions is high, it means that a market mover can make easy money when creating an opposing price move, forcing those positions to liquidate (and push the price even more in that direction). The following image describes a classic event of a long squeeze followed by a short squeeze. a classic manipulation of the Bitcoin price.

Short-term trading: Cryptocurrencies are considered to be very volatile assets. Margin trading of cryptocurrencies doubles the risk, and even more. Therefore, try to make short-term trading leveraged positions. Moreover, although the daily fees or margin position is negligible, in the long term, the fees can amount to a significant sum.

Pay attention to fundamentals: Major events surrounding the crypto space, like Bitcoin ETF decisions, SEC regulations and so on, can have a significant effect on the price of Bitcoin. Even though many traders rely only on technical analysis, keep in mind that those events might have a critical impact on the crypto market.

Extreme volatility – don’t leave the screen: Crypto trading sometimes has extreme fluctuations that occur in both directions, creating candle wicks. The risk, in this case, is that the deep will touch our liquidation value. It could happen where the leverage is relatively high, so the liquidation value is relatively close.

In fact, you can take advantage of these deeps and try to set closing target positions, hoping the deep will run over them, leaving you with a decent profit and then going back to the previous price.

Costs and Risks of Crypto Margin Trading

As mentioned above, the cost of the margin position includes paying the ongoing interest for the borrowed coins, and fees for opening a position with the exchange. As the chance to earn more increases, so does the risk of losing more.

The maximum we can lose is the amount we invested in opening the position. This level is called the liquidation price. The liquidation price is the price where the exchange automatically closes our position, so we don’t lose any of the money we were loaned and only lose our own money.

Example: if we are talking about standard trading, leverage 1:1, the liquidation price is when the position reaches a value of zero. As the leverage increases, the liquidation value will get closer to our buying price. For example, If the Bitcoin value is $1,000, and we bought one Bitcoin (long) with leverage of 2:1. The cost of our position is $1,000. Besides, we have also borrowed a further $1,000.

The liquidation price of our position will be a little over 500 USD – because, at that level, we lose exactly our initial $1,000, plus interest and fees. Margin trading can also be against the market, so we can also have a short position with leverage.

High leverage risk: The higher the leverage, the closer the liquidation price is. The rule here is dividing 100 by the leverage level will grant you the percentage until you reach the liquidation price. Example: a positive with 1:25 leverage needs only a 4% move (100 divided by 25) to get liquidated. 4% can be achieved quickly in the volatile crypto markets.

It is now possible to trade margin on most exchanges. The advantages of leveraged trading are very clear, and another significant benefit comes from the security aspect. Crypto traders should strive to minimize the number of coins they hold on exchanges. Exchanges are considered hot targets for hackers, and in recent years there have been several hackings of exchanges, including hacks of the major exchanges too.

Trading on margin allows us to open leveraged positions with no need to provide the Bitcoin required; that way, we can hold fewer coins on the exchange account.

Editors’ Pick

Binance Futures – the derivatives platform of the leading exchange by trading volume. Binance Futures offers a wide variety of trading pairs to choose from, allowing leverage of up to 125X for Bitcoin/USDT pair. As a limited offer only for CryptoPotato, using this link to sign up, you can receive 10% off fees and 50 USDT voucher (when trading 500 USDT volume).

Want to read more useful tips? Follow our 12 must-read crypto margin trading tips.