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Crypto Glossary/Margin Trading

Margin Trading

The practice of trading assets by borrowing funds from an exchange.

Margin trading is a way to increase your position size by borrowing funds from the exchange. It is a secured form of lending as you have to deposit collateral in order to leverage your position and borrow against it. The borrowed funds are always safeguarded at the cost of your collateral.

For example, if A opens a margin account on any exchange, deposits \(1,000 and proceeds to borrow using 10x leverage, they will have a position size of \)10,000.

However, in the case of a losing trade they can only afford to hold their position until the loss reaches a portion of their collateral. That portion or ratio depends on the leverage used, and if reached, will result in the exchange liquidating the user and recovering the collateral from their account.

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