Margin in crypto is essentially a practice of trading with money which has been borrowed from an exchange. Traders can Leverage their existing cryptocurrency by borrowing funds to increase their buying power.
Relationship between Margin and Leverage
You basically use margin to leverage.
Leverage is the increased “trading power” that is available when using a margin account. it allows you to trade positions LARGER than the amount of money in your trading account. Leverage is expressed as a ratio. It is the ratio between the amount of money you really have and the amount of money you can trade and is usually expressed with an “X:1” format.
Here’s how to calculate Leverage:
Leverage = 1 / Margin Requirement
For example, if the Margin Requirement is 2%, here’s how to calculate leverage:
50 = 1 / .02
The leverage is 50, which is expressed as a ratio, 50:1
Here’s how to calculate the Margin Requirement based on the Leverage Ratio:
Margin Requirement = 1 / Leverage Ratio
For example, if the Leverage Ratio is 100:1, here’s how to calculate the Margin Requirement.
0.01 = 1 / 100
The Margin Requirement is 0.01 or 1%.
However, using leverage in cryptocurrency trading can be a double-edged sword. It can lead to significant profits or complete bankruptcy.
At mudrex, you will be able to do make leverage trading strategies. Users can set multiple parameters available on the platform and backtest, paper trade and live trade it directly via API integrations.
There are 4 different kinds of trading methods you can choose for Leverage trade:
- Long Only
- Short Only
- Long-Close short
More details about these trading methods are available on our help article here.
Below is the example of a simple strategy to start with leverage trading:
Let's say you have the following conditions:
Run a strategy in Long-Close-Short mode
- Go Long when price increases by 5% in the previous candle.
- Go Short when price decreases by 3%.
- Run on 3x leverage
This Algo, when converted to strategy in our visual strategy builder, looks like this:
After saving the strategy, you can follow the steps to start with leverage trades.
- Select Bitmex in the exchange filed using the drop-down menu from the list of available exchange.
- BTC market will be selected as default in the market section.
- Choose the asset you want to trade using the drop-down menu(currently only supporting USD perpetual contracts).
- Select tick interval using the drop-down fields.
- Select the period of backtesting for your strategy.
- Select a trading method for the strategy. (in this case, we are choosing Long-close Short).
- Choose leverage for your strategy available options are from 1x to 100x. In this case, we choose 3x.
- Choose the starting balance for the strategy and click start test.
You will see results similar to the above graph.
Users can also backtest these strategies to optimize them across different asset classes with different leverage options and further trade (paper and live) on the supported exchanges.