San Francisco-based Bitcoin exchange Kraken has announced the launch of margin trading via a press release. This development lifts Kraken in the league of those few exchanges who allow their clients to trade Bitcoin on margin.
Kraken users, who have verified their accounts to Tier 3 or Tier 4, can leverage up to 20 times in the coming weeks. Interested ones should click here to learn more about the Verification Tiers.
Traders can similarly leverage their gains when the market drops. Initially, Kraken will not be charging its users any additional fee for margin trading. Users will have to shell out normal trading fee on the opening and closing volume of the margin positions.
While simply trading between different cryptocurrencies and fiat currencies is enough for the majority of users, some cryptocurrency traders want additional features in order to pursue more advanced trading strategies. One such feature is margin trading, which allows traders to borrow money from a broker in order to maximize the potential gains from a successful trade. Here's a list of cryptocurrency exchanges that support margin trading. This means that a successful trade will bring in more gains, but you always have to keep in mind that losses can add up very quickly as well — for this reason, margin trading is not suitable for inexperienced traders. We believe that Bitcoin will increase in value and purchase 1 BTC. This is an example of a standard, non-leveraged trade. On the other hand, we could have entered a leveraged trade, and use our 1 BTC to enter a long position with leverage.
How to Trade on Kraken Margin Trading
The launch of this option comes right after another popular exchange, Poloniex, opened a similar feature a few days ago. In this arrangement, the investor makes a cash down payment, called the margin, with the broker and can purchase stocks worth about twice the loan amount. The broker charges interest on this loan, and the investor has to keep the entire stockholding with the broker as collateral. Furthermore, the investor has to put up additional cash in case the value of the asset falls below a certain amount. Margin trading is high risk-high reward; if the investor wins a position, he or she can double the amount of money invested; however, if the investor loses a position, he or she will equally lose double the amount invested.