Bitcoin Margin Trading

Explore the possibilities of Bitcoin Margin Trading. We explain to you what it is and where you can trade Bitcoin on margin with leverage.

Trading can be more than just buying and selling an asset. With buying spot one can only profit from rising prizes. However synthetic derivatives also allow to “short sell”, i.e. bet on falling prizes. So one can profit while the prizes go down. They also allow Bitcoin trading on margin.

Bitcoin Margin Trading Exchanges

ExchangeAssetsLeverageKey FeaturesRegistration
ByBit↳ Bitcoin (BTC)
↳ Ethereum (ETH)
↳ Ripple (XRP)
↳ EOS (EOS)
↳ BTC up to x100,
↳ ETH up to x50
↳ XRP & EOS up to x25
↳ Great liquidity
↳ TP/SL with order entry
↳ Trailing stop as position closing function
↳ No overloads through matching engine with 100,000 TPS
↳ Soon fully hedged trading (long & short position on same account)
↳ No KYC
↳ Maker rebate -0.0250%, Taker fees 0.0750%
Register now & receive up to $90 bonus
Deribit↳ Bitcoin (BTC)
↳ Ethereum (ETH)
↳ BTC up to x100↳ Volatility orders, where the price engine continuously updates the price of the order
↳ Real-time risk management with incremental auto-liquidation
↳ Test-trading possible
↳ BTC Perpetual Maker Rebate: 0.025%, Taker Fee: 0.075%
↳ BTC Futures Maker Rebate: 0.02%, Taker Fee: 0.05%
Register on Deribit
FTX Exchange↳ Bitcoin (BTC) and various others
↳ Leveraged tokens for altcoin trading
↳ BTC up to x100
↳ Different leverages for other products
↳ Great liquidity
↳ One of the best crypto trading interfaces
↳ Clawback prevention through three-tiered liquidation model
↳ Centralized Collateral Pool
↳ Universal Stablecoin Settlement
↳ Leveraged Tokens
Register on FTX

Cryptocurrency Derivatives: More Than Just A Trend

Derivatives trading has increasingly influenced the market for cryptocurrencies in the recent years. A large part of the trading volume for cryptocurrencies is settled via derivatives.

Various studies by Alameda and Bitwise Capital have concluded that the share of derivatives trading accounts for 60-90% of the total volume.

What Are Derivatives?

A derivative is a financial contract between two or more parties that is based on the future price of an underlying asset.

Over the centuries, derivatives have become one of the most popular financial instruments. Today, a derivative is understood as a security that derives its value from an underlying or a benchmark. The contract may be entered into between two or more parties who wish to buy or sell a particular asset in the future at a particular price. The value of the contract is therefore determined by changes or fluctuations in the price from which it derives its value.

Typically, the underlying assets used in derivatives are currencies (or cryptocurrencies), commodities, bonds, equities, market indices and interest rates:

Derivatives can be traded either on the exchange or from client to client (C2C), which differs significantly in terms of regulation and type of trading. However, professional traders usually use both methods.

What is The Purpose of Derivatives?

Derivatives are used in many areas, but above all for hedging purposes when investors want to protect themselves against price fluctuations. In this case, signing a contract to purchase an asset at a fixed price would help mitigate the risks involved.

Another way to take advantage of derivatives trading is speculation when traders try to predict how the price of the asset could change over time.

There are many ways in which derivatives can be used in real life. For example, the large US holding company Berkshire Hathaway began selling put options on four stock indices, including S&P 500 and FTSE 100, before the 2008 financial crisis – and made a fortune.

Derivatives with crypto-assets as underlying are used for speculation in most cases.

The second largest target group, apart from speculators, are institutional investors who wish to invest in cryptocurrencies, but not directly. For them, Bitcoin futures such as the recently launched Bakkt Bitcoin futures are extremely interesting. You can invest in Bitcoin, but trade on a regulated exchange.

What Are Put & Call Options?

Put Option

A put option is a form of derivative that gives the owner the right, but not the obligation, to sell an underlying asset to the seller of the put at a certain price until a certain point in time.

Call Option

A call option gives the investor a right to buy, for example, a share from the issuer at a certain price within a predetermined period of time or to have his right expire. The call warrant is therefore referred to as a call option.

What Forms of Crypto Derivatives Are There?

CFDs

CFD is an acronym and stands for “Contract for Difference”. When trading CFDs, you do not buy or sell the underlying asset (e.g. a physical stock, a currency pair or a commodity).

You buy or sell a number of units of a contract that is entered into with a broker/stock exchange. Some CFD providers, such as eToro, have been involved in the cryptocurrency market for some time and offer contracts for it.

ETFs

An Exchange Traded Fund is similar to a CFD and represents one or more assets. Here, too, the underlying asset is not purchased, but a bet is placed on the price formed by a benchmark.

A Bitcoin ETF does not yet exist, but some providers are trying to offer a corresponding product.

The first crypto ETNs are already available, but they are not as secure as crypto ETFs. ETF assets are always independent of the issuer. With an ETN this is not the case and there is an issuer risk.

Futures

 A financial contract where a buyer has an obligation for a buyer to buy an asset or a seller to sell an asset (e.g. commodities) at a fixed price and a predetermined future price.

A special form of futures, which are very popular in cryptocurrencies, are perpetual contracts. These are futures without an expiration date and can be closed at any time.

Options

 A financial contract where a buyer has the right (not the obligation) to buy an asset or a seller has the right to sell an asset at a predetermined price within a specified period of time.

There are put or call options, ergo one wants to sell or buy the underlying value.

The Most Popular Crypto Derivatives

The most popular cryptocurrency derivatives to date are Bitcoin futures and options, as Bitcoin accounts for over 50% of the total market capitalisation for cryptocurrencies, making it the largest and most traded cryptocurrency.

However, other crypto currencies are also moving more and more into the focus of derivatives exchanges. Coingecko.com lists a large number of Bitcoin, Ethereum and altcoin derivatives:

  • 20 Bitcoin Perpetual Contracts
  • 33 Bitcoin Futures
  • 18 Ethereum Perpetual Contracts
  • 17 Ethereum Futures
  • 90 Other Perpetual Contracts (Altcoins)

Bitcoin Derivatives

Bitcoin Futures

A Bitcoin future is a contract that is settled at a certain time – in the future, thus the name. Usually there is a reference price or index used for the settlement. The future contract might trade above or below but at the end it is settled at reference price.

If a contract trades above reference it is called in “contango”. So if this contract is 5% in contango when the contract runs out it will settle at 5% below the price it was traded in. And vice versa if it trades below, which is called in “backwardation”.

Usually you can long and short these Bitcoin contracts, meaning “betting” that the price will go up or down.

Bitcoin Swaps

There is a different kind of contract called swap or perpetual swap. Perpetual means it is never settled but goes on and on. Shorts are “swapped” for longs and vice versa. The most famous exchange that offers these kinds of derivatives for crypto at the moment is BitMex (short for “Bitcoin Mercantile Exchange”).

But it is not only famous, it is also notorios for its “dropouts” when price becomes very volatile, the dreaded “order submission errors”. Something that other exchanges like Bybit were able to avoid. So a trader can’t place any orders when there is high volatility.

That made a lot of people lose a lot of money and got them looking for alternatives. Direct competitors are Deribit (Short for “Derivative” and “Bitcoin”) or Bybit, already named above. Some exchanges like Bitfinex or Kraken offer margin trading, too, but usually only with smaller leverage (i.e. x3.33).

Bitcoin Margin and Leverage Trading

Usually one can trade those Bitcoin contracts on “margin”. Meaning you borrow money from other traders to multiply your gains – or your losses. With this you can “leverage” your trades. Some crypto exchanges that offer margin trading allow up to x100 leverage.

The amount you put down for trading is the margin. Let’s say you trade $1000 with 10 times leverage. So you only have to put down $100 margin. All your gains are multiplied by ten. But also your losses.

So if price goes down 10% you are at a 100% loss – meaning your position gets liquidated and your margin is used to pay back the people who funded you – so it’s gone.

How The Margin Trading Funding Works

How does this funding work? In the perpetual swaps the longs fund the shorts or the shorts fund the longs, depending on the price action. If the price goes up very fast the funding will be in favor of the shorts, because more people are longing than shorting.

And so the funding offers an incentive for people to short. On Bitmex this funding system works for swaps. The futures work with a premium. That means you have to pay a premium if price moves against you.

These differences between the derivatives allow different kinds of arbitrage, so one can make money without the price moving and with less risk than just trading. Lets say the longs fund the shorts. So the trader shorts the swaps to collect the funding .

To reduce his risk he longs the futures with the same amount of money. This is called hedging. So he gets paid every eight hours without being touched by prize action. If you are in a trade and there is a sharp move and you expect a retracement it sometimes makes sense to not close the trade, but to hedge it as described, to collect funding. On BitMex it usually varies from about 0,01% to 0,1% – every eight hours.

Warning

Be warned: if you are a fresh trader and want to try margin trading: If you use high leverage you can blow your paycheck in a matter of seconds. You play the hardest game in the world against the best players which have more information than you and unlimited money to manipulate the price in any direction they please. Only a small percentage of people make money margin trading, the others get eaten alive.

Best Bitcoin (BTC) Margin Trading Exchanges

Bybit

ByBit is a new exchange and gives you the ability to trade Bitcoin, Ethereum, Ripple and EOS perpetual contracts with up to 100:1 leverage. In a very short time they were able to build up a customer base of 100,000 traders and a steadily increasing volume.

Bybit is based in Singapore and operates under the Bybit Fintech Limited, registered in the British Virgin Islands. The team includes experts of the blockchain and finance sector. R&D team has experts that hail from BAT and risk management team is comprised of Morgan Stanley alums.

They have a strong focus on security and applies the Hierarchical Deterministic Cold Wallet System, which stores all assets. All withdrawls are manually processed three times a day. Moreover the website is fully SSL-encrypted. All sent passwords and adress informations are safe.

Pros

✔ Multiple Assets: BTC, ETH, XRP, EOS

✔ No KYC

✔ Maker rebate -0.0250%, Taker fees 0.0750%

✔ $15M+ in liquidity

✔ PnL in USUD and Bitcoin

✔ TP/SL with order entry

✔ Trailing stop as position closing function

✔ Mobile trading app for Android and iOS

✔ No overloads through matching engine with 100,000 TPS

✔ 24/7 Live Support from the Bybit Team

Cons

✘ Not widely known yet

Register on Bybit

FTX

ftx

Established in early 2019, FTX offers professional derivatives trading products, including quarterly and open-ended contracts for various crypto assets, leverage tokens and over-the-counter (OTC) services. The major crypto exchange Binance also recently invested in the trading platform.

Pros

✔ Futures & derivates trading

✔ Advanced features & a great trading interface

✔ Special products such as leveraged altcoin tokens

Cons

✘ Hard to use for beginners (too much different products)

Register on FTX

Deribit

Deribit is an exchange for futures and options of cryptocurrencies. They are live since June 2016 after years of development. It was founded by John Jansen, Marius Jansen, Sebastian Smyczýnski and Andrew Yanovsky who are based with their company in Amsterdam.

Deribit is focussed on delivering a futures and options trading platform for professional traders, with the same standards as the traditional derivatives market. Their framework can handle quite a large amount of requests with low latency at the same time.

Pros

✔ Test platform for new traders

✔ Low fees

✔ Fast trading

Cons

✘ Bitcoin as only cash-in method

✘ Problems with overloads

✘ Geographically restricted in certain countries

Register on Deribit

Bitcoin Margin Trading in Practice

In this section I would like to explain how margin trading for crypto currencies works in practice. I use ByBit as an example exchange.

Basically, the interfaces of the different exchanges for margin trading are very similar, which is why you will also find your way around on other exchanges after the introduction.

Registration: Of course you will need an account on an exchange. The registration process at Bybit is very fast due to the non-existent KYC process. After entering your email address and a password you will receive a confirmation email. Once the account is confirmed, you are ready to make a deposit.

Trade: Bybit offers Perpetual Contracts for the crypto assets Bitcoin, Ether, EOS and XRP. These can be selected via the top menu.

If you have made a choice, you can use the Trading Interface, here for example “BTCUSD Perpetual”:

Over the input mask you can indicate the specifications of your trade. You have the choice between a limit, market and conditional order. The slider allows you to select the desired leverage. In the case of BTCUSD on Bybit, the maximum leverage is 1:100:

Below that you can enter the desired order price and the desired number of contracts you wish to buy. You also have an overview of the order value and the remaining available margin. After a click on “Buy/Long” or “Sell/Short” the trade is completed.

The open positions can also be found in the interface, below the chart. Here you can see all relevant data, such as the entry and liquidation price, the margin used, Unrealized PnL, Realized PnL and any stops:

Advantages & Disadvantages of Bitcoin Margin Trading

Advantages

The most obvious advantage of margin trading is the fact that it can lead to higher profits due to the higher relative value of the trading positions. In addition, margin trading can be useful for diversification, as traders can open multiple positions with relatively little investment capital. Finally, it can be easier for traders to open positions quickly without having to deposit large amounts of money into their account.

Disadvantages

Despite its advantages, margin trading has the obvious disadvantage of increasing losses in the same way that it can increase profits. Unlike regular spot trading, margin trading involves the possibility of losses that exceed a trader’s initial investment and as such is considered a risky trading method. Depending on the amount of leverage involved in a trade, even a small drop in the market price can cause significant losses for traders. For this reason, it is important that investors who choose margin trading adopt appropriate risk management strategies and use risk mitigation tools such as stop limit orders.

9 Tips For Margin Trading Bitcoin on Leverage

Margin or leveraged trading is very risky. Especially when it comes to cryptocurrencies like Bitcoin you should be aware of this fact and be cautious with your handling of it. Here are 9 tips which might help you! In case there are words you are not familiar with, check our Margin Trading Glossary.

Don’t trade with money you can’t afford to lose

It sounds so simple but for a lot of people it is not. If you are a beginner, or even advanced, you should never invest money into (margin-) trading what you can’t offer to lose. Gain confidence in your trading-style first and just start with low amounts. If you trade with too much you will be more stressed and are potentially in for bad decisions.

Educate yourself about interest rates & conditions

You should understand the interest rates/fee conditions on different exchanges where you are trading on. Too many investors just “trade”, without even knowing those conditions.

Have an eye on upcoming news events

Major news events regarding Bitcoin or Ethereum for example can have a serious impact on the price, in both directions. Make sure you are regulary informing yourself when trading margin positions.

Pay attention on your liquidation price

Nobody wants to get liquidated and losing the whole position. It is important that you are always looking for possible short and long squeezes. A short squeeze for example is a jump in a cryptocurrency price, forcing short position holders to close their positions, which drives the price even higher.

Use a stop loss at any given time

Risk management is important and so are stop losses. But be careful to not set it up too close to your buy-in price. Otherwise you are out of the trade before having the chance for the turn-around of the market. And if it is too far, you are not minimizing your potential losses enough. Setting great tight stop losses is something you will get better at with the time as it requires a lot of experiments.

Buy over longer periods & smaller amounts

Build up your position over a longer time frame and not in one order. It lowers the risk level and gives you the opportunity to react on short term fluctuations better than if you go in with one big order.

Educate yourself about support & resistance levels

Support and resistance levels are very important to watch while trading Bitcoin on margin. If you are not familiar with this topic feel free to read our article here.

Leave some funds on the side

Don’t go all in. Always leave a good portion of your funds on the side, e.g. for averaging down a position.

Take profits

Last but not least – don’t be too greedy, take profits from time to time!

Trade Bitcoin Now on Leverage

ExchangeAssetsLeverageKey FeaturesRegistration
ByBit↳ Bitcoin (BTC)
↳ Ethereum (ETH)
↳ Ripple (XRP)
↳ EOS (EOS)
↳ BTC up to x100,
↳ ETH up to x50
↳ XRP & EOS up to x25
↳ Great liquidity
↳ TP/SL with order entry
↳ Trailing stop as position closing function
↳ No overloads through matching engine with 100,000 TPS
↳ Soon fully hedged trading (long & short position on same account)
↳ No KYC
↳ Maker rebate -0.0250%, Taker fees 0.0750%
Register now & receive up to $90 bonus
Deribit↳ Bitcoin (BTC)
↳ Ethereum (ETH)
↳ BTC up to x100↳ Volatility orders, where the price engine continuously updates the price of the order
↳ Real-time risk management with incremental auto-liquidation
↳ Test-trading possible
↳ BTC Perpetual Maker Rebate: 0.025%, Taker Fee: 0.075%
↳ BTC Futures Maker Rebate: 0.02%, Taker Fee: 0.05%
Register on Deribit
FTX Exchange↳ Bitcoin (BTC) and various others
↳ Leveraged tokens for altcoin trading
↳ BTC up to x100
↳ Different leverages for other products
↳ Great liquidity
↳ One of the best crypto trading interfaces
↳ Clawback prevention through three-tiered liquidation model
↳ Centralized Collateral Pool
↳ Universal Stablecoin Settlement
↳ Leveraged Tokens
Register on FTX