Margin Trading: 3 myths, debunked

Margin trading is among the most complex and misunderstood trading practices.

That’s why as we at Poloniex have made new margin pairs available we want to share some basic educational resources. (Margin trading is only available to non-US customers. Non-US customers can trade, at up to 2.5 times leverage with BTC as the base pair, the following assets: EOS, ATOM, XRP, ETH, BCHABC, BCHSV, ETC, XMR, STR, FCT, LTC, BTS, DOGE, DASH, MAID, and CLAM.)

Here are some common margin trading myths, debunked:

Myth 1: To benefit from margin trading I have to actually margin trade.

No. Instead, you can earn interest on your funds by lending to other customers. When your loans are being used by margin traders, you are earning interest on them, which is paid to your lending account when a contract closes. (Poloniex takes a fee of 15% from the interest you earn, so be sure to consider that when you place your offers.) Your active contracts are listed under My Active Loans.

Myth 2: I can only use margin trading to go long on an asset.

No. You can use margin trading to long or short an asset. (To go long means to buy something with the expectation that it will rise in value; to go short means to sell an asset with the intention of repurchasing/covering it at a lower price.) For example, as we wrote about previously here and here, people are using margin to long and short some of the recent assets we made available to margin.

Myth 3: The worst that can happen is Poloniex issues a margin call.

No. Poloniex issues margin calls to avoid a forced liquidation. A forced liquidation is when all or part of your positions are closed automatically to prevent further loss and ensure you do not default on your loans. Forced liquidations occur when your Current Margin dips below your Maintenance Margin. It is strongly advised that you check the markets and your open positions regularly, mitigating your risk as necessary by reducing the size of your positions or transferring additional collateral into your margin account.

Please click here to learn more about margin trading or here (non-US customers) to trade margin. If you have any questions, please reach out to our support team here.