In the world of cryptocurrencies, margin trading is very tempting for those who want to double their profits quickly. But just as it can open a huge door to profit, it can also close it with huge risks. Is it really the right choice for you?
What does margin trading mean?
Margin trading is simply borrowing money from a broker (like Binance) to buy more assets than you actually have. This means you can trade with amounts larger than your original money, but at the same time, if the market moves against you, your losses will grow in the same way that your profits would grow.
What are the risks?
1. Magnified losses: If the market moves against your expectations, you may lose more than the money you put in.
2. Margin Call: When the value of the assets you have purchased decreases, the broker may ask you to increase the money you have deposited.
3. Interest and costs: Even if you win, interest and costs on loans can reduce your profits.
Liquidation in margin trading?
Liquidation occurs when your margin value reaches a certain limit due to losses on the open trade, and at that time the broker is forced to close the trade automatically in order to prevent losses greater than those you have in the account.
How does liquidation happen?
1. Margin Trading: When you open a trade using margin, you have a minimum margin that you must leave as a guarantee for the trade.
2. The market moves against you: If the price moves in the opposite direction to your expectations, the margin value decreases.
3. Margin Call: Before you reach the liquidation stage, the broker may ask you to increase the margin (deposit additional money) so that the deal does not get liquidated.
4. Liquidation: If you are unable to increase the margin, and the deal continues to lose, the deal is automatically liquidated, which means that the broker closes the deal so that you do not lose more than what you have.
Why is liquidation dangerous?
Loss of money: When liquidation occurs, you lose all the margin you had put in, which could be a large part of your capital.
Missed opportunity: Liquidation closes the trade even if the market moves in the right direction later.
Liquidation is one of the biggest risks in margin trading, which is why risk management is essential to avoid it.
Is margin trading permissible or forbidden from an Islamic perspective?
From an Islamic perspective, margin trading is haram because it involves taking out a loan with interest, which falls under the category of usury, which is forbidden in Islam. Another problem is selling something you don’t own, which is also forbidden in Islamic law.
---
If you are thinking of entering into margin trading, you must know that the risk is very high, and your success will depend on your understanding of the market and managing risks wisely. It may be a great opportunity, but if you do not deal with it correctly, the
Losses can be very large.
If you liked the article, don't forget to like and follow it, and don't forget to say your opinion in the comments.
