Margin trading, also known as trading with borrowed funds, is a way to increase your potential profit.
However, it is also the fastest way to lose everything if you are not aware of the risks.
Before you start, let’s understand:
What is margin trading?
How does it work?
What are the main risks?
How can a beginner protect themselves from heavy losses?
What is Margin Trading?
In regular trading, you only risk your own capital.
If you have €100, you can buy cryptocurrency worth €100.
In margin trading, the exchange lends you additional money based on your collateral.
Example:
You have €100.
You use 5x leverage.
Now you can trade with €500.
Your profit (or loss) is calculated from €500, not €100.
How Does Leverage Work?
1x – No leverage, minimal risk.
2x – If the asset rises by 5%, your profit is 10%. If it falls by 5%, you lose 10%.
5x – A 5% rise → +25% profit. A 5% drop → -25% loss.
10x – A 5% rise → +50% profit. A 5% drop → -50% loss.
20x+ – Extremely risky, even small moves can wipe you out.
Liquidation – The Biggest Threat
If the price moves against you, your account may reach liquidation – the exchange automatically closes your position so you don’t end up in debt.
Example:
You have €100 and use 10x leverage (total position = €1,000).
Price drops by 10%.
You lose your entire €100, because the exchange liquidates your position.
The higher the leverage, the closer the liquidation price.
Key Risks of Margin Trading
Excessive leverage – Tempting for quick profits, but even a small market move can wipe you out.
Emotions – Fear and greed often lead to bad decisions.
Liquidations – Without a plan, the exchange will simply take your collateral.
Fees and funding costs – The longer you hold a position, the more you pay for borrowed capital.
Volatility – The crypto market moves very quickly, especially in altcoins.
How to Protect Yourself
Start with low leverage
Beginners should use no more than 2–3x.
This allows you to learn trading without instant liquidation risk.Use stop-loss orders
A stop-loss automatically closes your position if the price reaches a set level.
Example: Enter BTC at 50,000. Stop-loss at 49,000.
Max loss = 2%, instead of your whole account.Don’t put everything on one trade
Never use all your capital for margin trading.
Safer to risk 5–10% of your portfolio.Learn risk management
Professional traders never risk more than 1–2% of total capital per trade.
If you have €1,000, risk max €10–20 per trade.Avoid highly volatile assets
BTC and ETH are more stable than small altcoins.
For beginners, it’s safest to start with major cryptocurrencies.Be careful with perpetual futures
Perpetual contracts look attractive, but they charge a funding rate every 8 hours.
This means long-term margin positions can become very expensive.
Practical Example
You have €200.
You use 5x leverage (total position = €1,000).
You buy ETH at €2,000.
Scenario A – ETH rises 10%
Without leverage: profit = €20 (10% of €200).
With 5x leverage: profit = €100.
Scenario B – ETH falls 10%
Without leverage: loss = €20.
With 5x leverage: loss = €100 → almost all of your initial money.
This shows that leverage is a double-edged sword.
When Should You Use Margin Trading?
Margin trading is not for everyone. It’s a tool for:
Experienced traders who understand risk management.
Short-term strategies (day/swing trading).
Hedging – protecting your portfolio from losses.
For beginners, margin should be seen as a learning tool with very small capital – not as a quick path to wealth.
Conclusion
Margin trading can multiply your profits, but it can just as quickly wipe out your capital.
To avoid losing everything:
Use low leverage (2–3x).
Always set a stop-loss.
Don’t risk all your capital in one trade.
Stay disciplined and start small.
Remember: trading is a marathon, not a sprint.
It’s better to earn small but steady profits than to chase overnight riches and lose it all.