Margin trading is a type of trading that allows you to trade borrowed assets and often it offers the use of leverage which allows trading larger in value than your available funds. It also allows you to short (sell) assets you don’t own, in anticipation of buying them back later at a lower price and keeping the difference as profit.
When you make a trade, you simultaneously buy one asset and short (sell) another. For example, if you buy BTC/EUR, you are buying BTC and shorting EUR. If you sell BTC/EUR, you are shorting BTC and buying EUR. The amount that you “short” is automatically borrowed from CoinMetro or other lenders and paid to the trade counterparts.
This is handled automatically by the CoinMetro trading platform behind the scenes. You pay interest on the borrowed amount while the trade is still open, but this cost is usually small in comparison to trading profits and losses. When the trade is closed, the borrowed funds are automatically repaid.
We will answer all of your questions. Like right now you might be wondering what is the difference between Margin Trading and Exchange Trading — easy! When an exchange order is filled, you exchange a specified quantity of one asset with a quantity of another asset and your wallet balances for the two assets update immediately.
In margin trading, you place an order to buy or sell a particular asset against another (as with exchange trading), but when the order is filled your wallet balances do not update. Instead, an open position is created which has a floating profit or loss (P/L) that automatically updates as market prices change.
Learn more about the differences between Margin Trading and Non-Margin trading here.
All questions answered? Well there could be more...
To trade on Margin with CoinMetro you must complete the following steps:
- Open an account with CoinMetro
- Complete your Profile Verification
- Fund your account
- Allocate some or all of your funds as collateral. This can be done in the Collateral panel inside the Margin platform.
- Start trading by opening new positions!
Margin Trading is calculated like this:
Available Margin - Collateral Value minus Unrealized Loss Example: If your allocated collateral is valued at $10,000 USD and you have open positions with unrealized losses of $2,500, then your available margin would be $7,500.
Used Margin – All open orders on Margin trading are called Used Margin Example: If the net exposure (value) of your open orders and positions is $24,000 and your account leverage is 3:1, then your used margin would be $8,000.
Free Margin – This is basically Available Margin, but it can go negative in case you have open positions with unrealized losses.
The margin currency can be changed from the left-hand side of the margin info bar:
The margin currency can be set to EUR, BTC. It is the currency in which all margin values, P/L values, and collateral values will be displayed. You can change the margin currency at any time.
To open a Margin Trade simply follow the next steps:
- Select the pair. This can be done by clicking a row in the Pairs panel.
- Complete the order form. You can choose between the Compact and Advanced order forms. The Compact order form lets you specify order type, price (if appropriate, depending on the order type) and trade size. The Advanced order form includes all the fields from the Compact form plus others including Take Profit, Stop Loss, Time in force and helpful shortcuts for calculating the trade size.
- Click the large Buy or Sell button at the bottom of the order form. If you don’t have 1-clicktrading enabled you will be prompted for confirmation.
What makes a difference between orders and positions?
An order is an instruction to enter a trade. These are created via the order form. It defines the pair to trade (eg BTC/EUR), order type (Market, Limit, Stop or Stop-Limit) and trade size, including the price levels at which the trade should be closed (Take Proﬁt and/or Stop Loss). An order can be ﬁlled as soon as it is placed (eg Market orders), or it can take longer (often the case with Limit orders).
While an order remains unﬁlled (or only partially ﬁlled) it is listed in the Open Orders panel where it can be modiﬁed or canceled.
When an order is ﬁlled (either completely or partially), a position is created with open P/L (proﬁt/loss) that automatically updates in real-time as the market price for the pair changes. Open positions are displayed in the Position Summary and Positions panels. When a position is closed, the open P/L converts to closed P/L and updates the wallet and collateral allocations for your Primary collateral currency.
Closing an open position is easier than you think:
An open position can be closed manually or automatically. To close a position manually, select the position in either the Position Summary or Positions panel and click the Close button. Be aware that any position can be closed automatically in any of the following situations:
- The Take Profit price is hit, resulting in the position being closed at the specified price or better. Note: if the Take Profit is only touched on thin volume without trading through it, your position might be only partially closed, or not closed at all.
- The Stop Loss price is hit, resulting in the position being closed at the current market price, possibly incurring slippage.
- Your Free Margin % drops to -100%, triggering a stop out, which closes all your margined positions for a heavy loss. To avoid this from happening you should employ good risk management, for example by using stop losses and risking only a small amount of your collateral per trade.
With CoinMetro, a Margin Call is triggered when your Free Margin drops to zero due to open losses. You will be notified about this and will be unable to place new trades until your free margin becomes positive again.
Here is a brief explanation of Time in Force option in the Advanced order form:
GTC: Good-till-cancelled - the order will remain active until it is filled or cancelled.
GTD: Good-till-date - the order will expire at the specified date & time if not filled or cancelled earlier.
IOC: Immediate-or-cancelled - requires all or part of the order to be executed immediately. Partial fills are supported, with any unfilled portion being cancelled.
FOK: Fill-or-kill - requires that all the order be executed immediately. If this is not possible, the order is canceled.
We hope this answered your questions about this topic, if not, please don't hesitate to contact us.
-CoinMetro's Customer Support