Last Updated on March 6, 2023 by Bitfinsider
Suppose you purchase $100 worth of Ethereum in anticipation of a 20% price increase. If it does, and you choose to cash out at that time, you will have a $20 profit.
In another scenario, what if you could purchase Ethereum worth $1,000 with only $100 of your own money? What if, in other terms, you could trade using leverage? Because if you did so, you would end up with $200, which is roughly equivalent to doubling the quantity of money you began with.
And what if you could use that $100 to profit by becoming a short seller and wagering the price of bitcoin will decrease?
Well, the scenarios above are all true and It is commonly known as Margin Trading.
It is a high-risk crypto method that allows you to maximize both gains and losses through the use of borrowed funds, hence the term “leverage.”
What is Margin Trading and what exactly does “leverage” mean?
Trading on margin, also referred to as leveraged trading, is the practice of placing bets on cryptocurrency exchanges while exposing only a part of one’s own available cash. “Leverage” is another term for borrowed funds. The margin is the least quantity of cryptocurrency needed to start a leveraged position.
One of the following methods can be used to open accounts in margin trading:
- When you take a short position, you are betting that the price will go down.
- When you take a long position, you are betting that the price will continue to rise.
When you open a long position, you buy a cryptocurrency with the goal of eventually selling it for more money. This gives you the opportunity to benefit from the price difference. This can also be accomplished without using a margin as well. When you borrow a cryptocurrency at its current price with the purpose of buying it back at a lower price and profiting from the difference, you are taking a short position.
An example of the degree of leverage could be a number, like 20:1 or 100:1. With a leverage ratio of 100:1, if you have $2,000 in your trading account and want to start a long position, you will need to put up collateral (your own money) equal to 1% of the position’s size in order to do so. The cryptocurrency exchange will provide the remaining 99%.
Scallop Margin Trading Guide
To trade with Margin on Scallop Exchange, you need to create an account first. If you have been following us on our latest news and guides, you should be registered with Scallop already and you may skip the next paragraph.
If this is your first time, fret not! The process in itself is very easy, as the registration requires only an email address and password. You can refer to our guide on the step-by-step registration process here. Note that you will be required to verify your email. Once your account is verified and ready to go, you can deposit funds into your account by following our guide here.
Once funds are deposited, you will have to transfer them into your Margin Trading Wallet. Hover over the “Balances” option on the home page, then click on “Margin Account”.
Afterwards, you will see the following:
Click on “Transfer” and you will be prompted to transfer funds from your Spot Account (in pairs) to your Margin Account. Once you have keyed in your desired amount under “Number of Transfers”, you may proceed by clicking “Transfer” at the bottom of the prompt, as shown below.
Once your transfer is complete, return to Margin Trading Wallet under “Balances”.
Click on “Borrow” this time, as shown below.
You will be required to input the loan amount that you wish to borrow. Note that the amount you wish to borrow cannot exceed your borrowable assets, as indicated above your loan amount. Also, please take note of the hourly interest rate, which changes depending on your loan currency.
Once done, the funds will be deposited into your margin account, which can be viewed by selecting the Balance/Margin option. Now, to proceed with Margin Trading on the Scallop Exchange, simply hover over “Trade” at the top of the page and click on “Margin”. You will see the following screen at a glance:
For starters, you can select the cryptocurrency pairing that you wish to purchase on the right. For example, type in “Eth” in the search box and you will see various pairings that are related to Ethereum and in various cryptocurrencies.
Click on the pair of your choice and the page will refresh. Afterwards, you can proceed to do your margin trade at the bottom of the screen, as shown below.
Before you proceed, we would like to stress once again that using high leverage is a very risky move that could lead to losses and should only be used by experienced traders who can manage their risks.
Note: Take a Buy/Long position if you believe the asset will increase in value, and a Sell/Short position if you believe the price will decrease.
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Disclaimer: The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, legal, tax or other advice. Investing in or trading cryptocurrency or stocks comes with a risk of financial loss.