Margin Trading on WhiteBIT

The crypto industry has been adopting the stock market experience in recent years and provides various trading tools for traders to implement their trading strategies. Due to the active introduction of derivative instruments for cryptocurrency trading, traders are increasingly choosing this industry. Futures and margin trading are becoming the most popular tools since they allow trading on borrowed funds and make the trader more flexible in a highly volatile market.

Let’s take a closer look at why traders love considerable leverage, what margin trading is, and why we often hear about liquidations in the market. Let’s go!

What is margin trading?

Margin trading is trading using borrowed funds provided by a third party. In the cryptocurrency field, cryptocurrencies themselves act as an asset. They can be provided by centralized, decentralized exchanges and DeFi protocols. Margin trading allows traders to manage borrowed funds to apply various trading strategies, benefit more from transactions, and earn on a falling market.

Trading with leverage is a high-risk instrument that can lead to loss of funds, so you first need to understand how it works.

Unlike futures, margin trading is comparable to spot trading because traders borrow real assets and trade them rather than contracts.

Leverage is a loan provided by the exchange for trading. It allows you to increase your capital several times. In the case of margin trading, your money is blocked as collateral for an open position. That is, you trade with your money, so you will not be able to spend borrowed funds in any case.

Now, we will analyze how margin trading works in a rising and falling market using examples.

An example of trading in a rising market:

You have $1000, and Bitcoin is worth $10 000. To buy 1 BTC, you can use 10x leverage and get a $9 000 loan. You will have $10 000 total then. You will buy 1 Bitcoin by spending only $1 000 of your funds.

If the BTC price rises by 10%, you will earn $1000 from the sale, excluding the fee for using funds. The fee does not exceed 0.1% on WhiteBIT.

If the asset’s price falls, you will partially lose funds. For example, if the price of BTC falls by 5%, only $500 will remain from the initial $1000.

An example of trading in a falling market:

You have $1000. You can borrow 1 BTC with 10x leverage and sell it for $10 000. When the asset’s value drops to $8000, you buy 1 BTC, which is returned to the exchange, and your profit will be $2000 without commission.

In the event of a fall in the value of an asset, if the amount of margin becomes less than the minimum, you will receive a Margin Call. If the fall continues, the exchange will automatically liquidate your position.

A Margin Call is a message about a loss-making position. In this case, you can deposit funds to the balance without losing the position or doing nothing. It occurs when the number of your funds reaches the maintenance margin level.

At WhiteBIT, the maintenance margin is 75%. If you have a $1 000 open position with 10x leverage, you will receive a Margin Call when it loses 25% of its value and is worth $9750, where $9000 is borrowed, and $750 is yours. Remember that in margin trading, you lose only your funds.

Liquidation refers to the automatic closing of a position due to unprofitability. At WhiteBIT, the initial margin is 50%. This means that open positions will be liquidated when you lose half of your funds, i.e., the position will be worth $9500, of which yours are $500. In the event of liquidation, the borrowed funds are automatically returned to the exchange, and the rest $500 remains in your Trading balance.

It’s important to note that these examples are simplified and do not consider the volatility of the market, other trading costs and other possible factors that could affect the outcome. Additionally, the examples are based on a specific exchange and its commission, leverage and margin level which may vary from exchange to exchange.

What are the types of margin trading?

Isolated means that for each trading pair, when opening a margin position, an isolated account is opened. Liquidating a position for one pair does not impact other positions. The trader can deposit assets to the balance to protect himself from Margin Call or liquidation of positions. The advantage of this type of trading lies in protection from high market volatility.

Cross-margin trading has a single account where all margined assets are held. In this case, the margin level is the same, and liquidation applies to all assets. Due to the market’s high volatility, you can lose all your funds in your trading account. Despite this, cross-margin trading allows the profit from one pair to compensate for the damage from the other, that is, to save the trader from Margin Call and liquidation.

What are “long” and “short” positions?

Long and Short positions allow you to buy and sell an asset and are most often used in margin or futures trading. They help to profit from price fluctuations.

A long position is opened to profit from an increase in the price of an asset. Going long is one of the most common trading strategies, especially in the spot market. The trader expects the asset’s cost to rise to get profits from an asset’s sale.

A short position is used to sell an asset ahead of its price falling. Unlike long positions, for short positions, traders borrow assets and sell them. When the price of an asset falls below the sale price, they buy the borrowed asset and repay the debt, keeping the remainder. Profit under this scheme is the difference between an asset’s sale and purchase price.

It is also believed that short positions are riskier than long ones. When opening a short position, a trader takes a loan on an exchange, but due to the market’s high volatility, he may immediately buy the asset, leading to a loss of funds.

If you are just starting trading, remember that you need to use a stop-loss order to control losses on positions.

Margin trading on WhiteBIT

Margin trading on WhiteBIT offers a wide range of opportunities for traders looking to increase their potential returns. On WhiteBIT, traders can open positions with 1x, 2x, 3x, 5x, 10x, and 20x leverage. To secure positions, only a cross-margin account is available. The fee is no more than 0.1%.

Unlike spot trading, when opening a position with leverage, it is possible to create an OCO (One Cancels the Other) order. It helps respond quickly to asset price changes (hedge positions). With OCO, you can immediately sell an asset if the price falls and minimize losses or sell an asset if the price rises.

What are the benefits of margin trading on WhiteBIT?

1. Flexible leverage ranging from 1x to 20x.
2. One of the key benefits of margin trading on WhiteBIT is its low fees, which do not exceed 0.1%. Additionally, holding the platform’s native token, WBT, can further reduce these fees.
3. Another advantage of margin trading on WhiteBIT is that traders can secure their positions using any other assets on the Collateral balance. This allows traders to use a wide range of assets to ensure the safety of their positions.
4. Additionally, traders are only charged a fee for using the borrowed funds if the order is at least partially executed, which helps to reduce unnecessary costs.