I haven't really gotten into margin trading since I've found futures trading to be way better. I know a ton about futures, even the practical side of calculations, but margin trading isn't my thing. With cross margin, you can leverage up to 10x, and it lets you buy, which I get. But what about selling?
If I short bitcoin after borrowing it and its price drops, will I profit like in derivatives? Or is it more like spot trading where it's a one-way street? I mean, it feels pretty similar to spot trading except for the leverage aspect. I tried it once but backed out because it didn’t seem worth my time, so now I'm just here asking questions.
As I understand it, you will get exactly the same profit as in futures trading. But there is also a difference, since cross-margin trading implies having a common balance to ensure open positions, that is, you can use any coins to ensure open positions. In this case, if you do not use a stop loss, one unsuccessful position can take away the entire margin, which will lead to the liquidation of all open orders.
Never tried margin trading based on their guides from Binance and OKX I think its not the same as futures because we are buying and selling contracts on futures, compared to margin trading, you are trading with real assets, which you actually own the assets and use the margin to borrow money from the exchange that you can use to buy more assets.
Sample you trading with Bitcoin on spot trading, and you enable the margin trading, there's a 3x on cross and 10x on isolated once you use the borrow money the losses or wins is amplified by 3x or 10x but take note you own that assets meaning if you are going to sell it you are actually selling the assets you could make a profit if the price of the assets increased but you are going to lose if you sell it when the price of the asset is drop.
This is different from futures where you can able to make money if your position is short and the price drops, then you can make a profit.
In the margin, the sell button is likely your exit, meaning you are going to sell the assets you buy, depending on how much you want to sell.
In futures, you can make a profit even in the bearish season, while in margin, you can only make a profit in the bullish season.
Correct me if I'm wrong, but that is what I understand about margin trading. I never had a chance to experience it because I usually trade on spot and futures.
Since the answers are contradictory, I will trade it with little amount of money and post my experience about it here. I was thinking derivative trading like perpetual future and options are the ones people can use to go short position and make profit but I read online recently about how margin trading can be used for it but forex was used as an example. As to what I understood about margin trading when I was a newbie in trading is what BitMaxz explained. I did not go for it because it was frustrating but I will use like $25 for it to know what will happen.
Er, @BitMaxz is absolutely wrong.
Main difference with derivatives and regular trading is one you only trade contracts, one you actually trade assets.
Margin trading is neither derivative or spot, margin just means you use your funds as collateral, and you borrow money (from the platform/exchange) to buy up more assets.
You can make a profit in margin trading just like any other style, bull or bear.
So OP when you're selling on margin on BTC, it just means you buy the BTC and immediately sell it... but you owe the BTC still, so you're hoping price goes down so you can buy it back cheaper.
Example. I have $100 and I want to do 2x margin. I use it as collateral to borrow $100. Now I have $200. Hence I have 2x leverage.
I go short on COINX at $100. This means I am "sell" 2 COINX. The system buys 2 COINX and immediately sell for $200. I now owe 2 COINX.
COINX becomes $80. When I close my position, the system buys 2 COINX for $160, and pays back the COINX I owe. Now I am left with $40 (my profit).
Edit: Example is very simple but it is more complicated than that. Margins will mean if price goes other direction to a certain limit the system will close your position automatically if it knows your liquidation point is less than what you owe. So in practical, you can't even short the full amount you borrow, if it moves up even 1 satoshi, you're liquidated.
As far as I know, the difference between margin trading and futures trading is that when you do margin trading, you are basically trading on the spot market but with leverage. I think we all agree that Binance and other exchanges manipulate the futures market to liquidate customers and generate huge profits. If you want to make money from a short position, I believe it's much better to do margin selling because the spot market doesn't get as manipulated as futures and with a short position, you are much safer on the spot market.
You did not answer my question and you did not post anything related to it at all but you are right that the price of bitcoin on the margin trading is the same as the spot market and not contract like derivatives.
Spot market can also be manipulated, depending on the coin that you are trading.
This is the question:
I never tried margin yet let's see how it goes and let us know.
How did you know that it was manipulated by exchanges like Binance?
The only thing that I know that moves the market are banks and big institutions or whales. Maybe on the past they can but since MicroStrategy keeps buying and holding and also we have Bitcoin ETFs I don't think they can still manipulate the BTC price maybe it is less manipulated than before.
I have just tried it now using bitcoin with $20 went 20x but I later change it to an altcoin to make the profit and loss noticable. I used USDC to borrow the money which I saw on my trading account and I used it to open short position. I had a profit of $4.9. tvplus006 is very correct about it. But I just do not like how margin trading is.
I prefer futures but there is issue of funding rate but which can favour trading as it may also unfavour traders. If you are not losing money in futures, you are not borrowing any money until the PnL is negative. The exchange also deduct fee for the losses but some traders may not know this. I like how my profit and loss can easily be seen on futures unlike margin. Or maybe the exchange I used for it.
the technicalities and details of short selling and longing is the same
if you know how to long you'll have to problems to short sell, the only difference is that when shorting you make money if the price goes down and lose if the price goes up (right now we have a harder time to short because the market is trending up so you'd have to bet against the trend)
remember that upside on shorting is limited too because the minimum an asset can reach is zero while when longing there's virtually no max
If you take a close look at the tokens that have recently been listed daily on centralized exchanges, you will see that the choice of coins for shorts is very large. As a rule, such coins lose their value very quickly after a pump on the listing. As for the potential of long positions over short ones, it is easily leveled by the size of leverage.
Much better to venture the spot trading market over futures if you have little grasp of this market. That is true, you can easily get liquidated in futures. And before you know it, all your funds have been wipe out already
I do not know the reason some people will just come to this forum to post without having any help they can provide. I do not gain anything from what he posted. Good that you corrected him and I do not ask for the meaning of going short or long position nor asking anyone to educate me about the coins that I should trade. To avoid off-topic posts, I will lock this thread.