Margin trading with leverage in the cryptocurrency market (coin) is a form of trading where you borrow additional capital from the exchange to increase the size of your trading position, thus having the opportunity to amplify profits (or losses) compared to just using your own capital. Below is its basic nature:

  1. Leverage:
    Leverage is the ratio of the amount you borrow to the amount you actually invest (margin). For example, with 10x leverage, you can trade with an amount 10 times your own capital. If you have $1,000 and use 10x leverage, you can open a position worth $10,000.

  2. Margin:
    This is the amount of money you need to deposit to open a trading position. The exchange will hold this amount as "collateral" for the loan. If the market goes against your prediction and the loss exceeds the margin, you may be liquidated.

  3. Amplified profit and risk:

    • If the coin price increases as predicted, your profit will be multiplied by the leverage ratio. For example, with 10x leverage, a 10% price increase will yield a 100% profit on the margin.

    • Conversely, if the price drops 10%, you could lose your entire margin, even going into negative balance if not managed well.

  4. Liquidation:
    When the price goes against you and the loss reaches the threshold required by the exchange (commonly known as a "margin call"), your position will be automatically closed to protect the exchange from losing the loaned capital. This causes you to lose all of the margin.

  5. Borrowing costs (Funding Fee/Interest):
    When using margin, you must pay interest or position maintenance fees (funding fee) to the exchange, typically calculated hourly or daily, depending on the exchange.

Illustrative example:

  • You have $100, using 5x leverage to buy Bitcoin worth $500.

  • If the price of Bitcoin increases by 20%, your position is now worth $600, you sell and repay the $400 borrowed, leaving you with $200 (100% profit on your initial capital).

  • But if the price drops by 20%, the position is worth $400, just enough to pay off the debt, you lose your entire $100 margin.

Core essence:
Margin trading with leverage is a double-edged sword – it amplifies both profits and risks. To succeed, you need to have a clear understanding of the market, a tight risk management strategy (such as setting stop-losses), and not let emotions dictate your actions. Otherwise, the risk of losing capital is very high, especially in the highly volatile cryptocurrency market.