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What is margin in cryptocurrency trading?


Diane

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It is very common to see the term “margin” when trading with leverage in a trading account, where margin simply represents a percentage of the full amount of your trade. To continue the above example, based on a margin requirement of 10% and using a 100:1 leverage ratio, the margin required to open a $10,000 position will be $100.

 

“Free margin” refers to the amount of funds that are available for a trader to open a position. On the other hand, “used margin” refers to the amount of funds that are used to maintain current open positions that are still running. You could think of “used margin” as a sum of money that is put aside from your account balance in case the position swings against you to the point of liquidation.

 

In the event that “free margin” has been used up and there isn’t enough margin left in the trading account, if an open trade has any drawdown against the trader, this is where the broker will issue a “margin call” warning to the trader. This alerts the trader that they need to add funds to their account in order to keep the position open. If no additional margin is added, the broker may close the position in order to prevent further losses.

 

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