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Margin or leverage Trading is very attractive for traders because it helps a trader to get a higher return on capital and allows him to take a larger position than a trader's capital.
However, many traders find it difficult to understand margin trading and end up losing money when trading on margin. In this blog, we describe margin trading in simple terms without making it complicated.
In simple terms, in the case of margin trading, a trader only gets his profit or loss on the coin. The merchant will not actually receive the coin, but only the profit or loss from the moment he enters the position until he leaves it.
It's different from buying a coin because in this case you actually get the coin, but in the case of a margin trading, you will only get the P / L. Therefore, the margin trading is good for traders looking to take advantage of the change in the price of the coin and make fun of having or holding the coin.
How it actually works – An example
So, let’s say charge of Ether is 100$ and a trader believes that Ethereum is going to go to 110$ inside the short term. He decides to go long Ethereum futures on Delta trade with 20X leverage. for the reason that leverage is 20X the dealer is required to keep 100/20 = 5$ well worth of ETH or 0.05ETH with Delta exchange to open this function.
Now if the price of ETH is going to 110$ and trader closes the location he makes a 10% earnings or 0.1ETH income on his function. The trader has however invested simplest 0.05ETH for trading ETH futures on Delta trade, This means that that his go back on capital is 200%.
If as an alternative the price falls to 95$ then the trader has made a 5% loss on his position. This will mean that the finances 0.05ETH that the trader has kept with exchange aren't enough to cover his losses. At this factor if the dealer does not add more margin to his position the alternate will liquidate his role. In different phrases his function is closed to make up for his losses. this will mean that the trader will lose the complete 0.05 ETH that he had stored with the exchange.
So, This was some important facts and information about Margin and Leverage Trading.