For the sake of earning a higher potential, crypto traders indulge in cryptocurrency margin trading. Unlike regular trades, margin trading allows traders to open a leveraged position. Basically, traders borrow money from the exchange itself and trade with the capital more than they actually own. Undoubtedly, the higher the profits, the higher are the risks.
Before building a crypto margin trading software, one must understand three basic concepts, including the following:
1) Margin loan
For the trader to open bigger positions, the crypto exchange is required to loan funds. This creates an opportunity for the exchange operator to earn interest on the funds he loaned to the traders. With this money, the trader is able to trade with money more than he possesses. Thus, it becomes a win-win situation for both the trader and the exchange.
2) Trade leverage
Margin trading software allows a trader to create a funds multiplier effect to trade for an amount higher than he possesses. The higher the leverage, the higher will be the gains and the risks too. A margin exchange trade multiplier starts at 2x and goes up to 100x
3) Liquidation price
The liquidation price is a way by which the exchange protects the loaned funds in case of the trader books a loss. If a trader books a loss in margin trading, the exchange can automatically close the trade and liquidate the position. The exchange must set the liquidation price as a minimum threshold and this must take into account the factors like the interest rate on the loaned amount and trading fees.
How does crypto margin trading work?
To begin with, the trader is required to set a percentage of the total value of the trade order. This is basically called the margin. The second step is to choose a leverage level in a calculated manner. Let’s say a trader wants to perform a 1BTC trade with 100x leverage. To place this trade order, he is required to put a minimum of 10% of the capital. In this case, the amount would be 0.1 BTC.
Why do exchanges offer higher leverages?
Higher leverages ensure that the traders’ liquidation price is close to their entry price. This is a critical thing for the traders. That’s because if the market moves against the trader’s position and comes down to the minimum threshold, the trade will be liquidated automatically.
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How safe is crypto margin trading?
During margin trading software development, it must be noted that the platform supports opening long and short positions. For a platform to support long means the user can margin trade with a belief that the price will go up. Shorting means that the trader anticipates the price of the crypto coin or token might move downwards.
This is for sure that crypto margin trading is not for crypto newbies. Thus, as a margin exchange operator, you are required to build a sophisticated exchange that supports experienced traders in building effective risk management strategies.
Unique tools for margin trading exchanges
Not every margin trading exchange platform becomes successful. However, there are some tools that can give your exchange an edge over others.
- Portfolio stimulator
Some of the reputed margin trading software come with tools like portfolio stimulator. This tool allows traders to try their hands on a couple of simulated margin trades. Thus, the traders get a hand on how margin trading works and build their strategies before they trade in the real market.
- Charting tools
Charting tools are very important for a professional trader. These help a trader build strategies to avert losses.
A margin trading platform can help traders amplify their positions and profits. At Antier Solutions, we help offer white label margin trading software development solutions to accelerate the deployment of your platform. At the same time, we specialize in building a custom margin trading exchange from the ground up.
Schedule a free demo of our white label margin trading software or connect with our subject matter experts to share your needs for a custom exchange to be built from scratch.