Put Up Some Collateral: You deposit some of your own money as collateral for the loan.
- The Broker Lends You More: They lend you a multiple of what you deposited. This is your leverage.
- Trade With the Borrowed Money: Now you can buy more crypto than you could otherwise afford.
- Pay Back the Loan: When you close your trade, you repay the loan, plus interest.
Why Do People Use Margin?
Bigger Potential Profits: If your trade goes well, leverage multiplies your gains.
The Big BUT: Margin is VERY Risky
- Bigger Potential Losses: If your trade goes badly, leverage multiplies your losses. You can lose more than you initially invested!
- Margin Calls: If prices move against you, the broker may force you to add more money or sell your crypto to repay the loan.
The Big Idea: Margin trading is like putting your crypto trades on steroids. It can lead to big wins, but also big losses. It’s generally not a good idea for beginners.
