Margin Trading is a trading strategy that allows you to borrow funds to increase your buying power and open larger positions than your actual account balance would normally allow.

šŸ“Š How Margin Trading Works:

1. You Deposit Collateral

This is called the margin ā€” your own funds that you put up as security.

2. You Borrow Funds

Based on your margin, you can borrow additional funds from the exchange (like Binance) or other traders.

3. You Trade with Leverage

You can trade with leverage, such as 2x, 5x, or even 10x.

For example:

With $100 and 5x leverage, you can open a $500 position.

4. You Repay the Loan with Interest

When you close the position, you repay the borrowed amount plus interest.

šŸ“ˆ Example:

Letā€™s say:

You have $200 in your account.

You use 5x leverage ā†’ Total position = $1,000.

If the price goes up 10%, your profit is $100 (50% ROI on your $200).

But if it goes down 10%, you lose your $200 ā€” a 100% loss.

āš ļø Risks of Margin Trading:

Liquidation Risk: If the market moves against you too far, your position is liquidated, and you lose your margin.

Higher Volatility Impact: Leverage amplifies both gains and losses.

Interest Charges: You pay fees for borrowing, which can add up over time.

šŸ” Key Terms:

Term Meaning

Leverage The ratio of borrowed funds to your own capital (e.g., 10x).

Margin Call A warning to add more funds when your position nears liquidation.

Liquidation Forced closure of your position due to losses.

šŸ§  Final Tip:

Margin trading can multiply profits, but it can also wipe out your capital quickly. Itā€™s best suited for experienced traders with strong risk management skills.