Brought to you by the Liquid team to help you make sense of crypto.
Margin trading is a way for cryptocurrency traders to borrow funds to increase the power of their trades. It can be very lucrative, but just like margin trading increases proportional gains, it also increases proportional losses.
When you’re getting started with margin trading, there’s a whole world of terms and definitions to get your head around.
Here’s our list of margin trading terms that you need to know.
Base currency - The currency that is being quoted. In BTC/USD, BTC price is being quoted.
Cross margin - Margin is your entire account balance for the chosen currency. In the case that you are using Cross Margin, your open positions will use your available balance to fund any losses to keep a position open.
FA - Fundamental Analysis - The evaluation of an asset’s fundamental value to assess whether any price moves would be expected in the short or long term
Funding currency - The currency that you will be using to pay for the trade. For example, you could be trading BTC/USD but fund the trade with Euros. The exchange will handle all conversions behind the scenes.
Interest - The amount charged for borrowing funds for trading, which is usually charged as a % over a certain period of time.
Isolated margin - The amount of margin that is assigned to a position that is isolated from the rest of the funds on the account. Losses cannot be greater than the assigned margin.
Leverage - The proportion of your trade that will be paid for with borrowed funds. If you are using 2x leverage, you will be funding half of the trade. If you are using 25x leverage you will be funding 1/25 of the trade.
Limit - A type of order that only executes at the price specified. The limit price must be better than the current market price. Therefore, for a buying order the price must be lower and for a selling order it must be higher than market price.
Liquidation - The forced closure of a trade due to the available margin being exhausted, forcing the exchange to close the trade to stop losses and mitigate risk.
Liquidity - The depth of a market. A market with good liquidity has a lot of traders actively trading, which means there are lots of buy and sell orders enabling other traders to enter and exit positions, regardless of size, easily without too much market fluctuation.
Long - A buying position that enables the trader to profit if the price of an asset increases.
Margin - Margin is the portion of your own funds that you put into a trade. Keep in mind that depending on what margin mode you are using, your losses may not be limited to this margin.
Market - An order that executes instantly, taking the best market offers possible to fill the order.
PnL - Stands for Profit and Loss. PnL shows you the standings of each trade, whether it’s in profit or loss.
Position - An open margin trade is known as a position.
Quote currency - The part of the trading pair that the price is shown in. For example, with BTC/USD, USD is the quote currency and the price of BTC is quoted in USD.
Short - A selling position that enables a trader to profit if the price of an asset decreases.
Spread - The price difference between the lowest sell offer and the highest buy offer.
Stop - An order that executes once a specific price is reached that is worse than the current market price.
Stop loss - A price level you can set on a position which will, once reached, close the position and prevent any further loss.
TA - Technical Analysis - Using statistics and charting to evaluate the historical performance of an asset to attempt to predict future price movements.
Take profit - A price target you can set on a position which will, once reached, close the position and lock in profits from the trade.
Trailing stop - A trailing stop order is a stop order with a limit that "trails" after market price. You can set a limit, such as $50, and once the price moves $50 against the trend the order will be executed.
This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.
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