For every dollar borrowed on margin debt, a percentage of equity i.e. spot holdings is locked as collateral. If the trader doesn’t tend to the call, the broker can sell the holdings to recoup the cash. When the value of this equity falls below a certain value, a margin call is triggered by the broker. This is a call for the trader to add funds or liquidate equity to meet the collateral value.

Another fact is that when governments get involved, people take notice. So, even in this rough water, the net positive is that more people are getting to know about and trying to understand crypto. However, while most regulations are policy whips being cracked to keep the citizens under control, there are certain rules that can have an ulterior positive attached to them. This may essentially translate into more people joining the crypto bandwagon to have their skin in the game.

One of them is the rules around ‘margin trading’ and especially in the USA. Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers (that’s right, millions love us!) – what are you waiting for? Now, read along to know what margin trading is, the associated regulations, and more about them.

What Is Margin Trading? Unlike the spot market where traders can only lose their cash in hand, margin trading ensures the trader is indebted to the broker. Now having understood how margin trading works, let’s dive deep into the prominent risks a margin trader needs to account for. As stated earlier, traders going wrong on margin trading calls can end up losing substantially more than they had initially invested. If your bet wins, you can book extraordinary profits. Also, interest is charged which only amplifies the losses incurred by the trader. Most importantly, think of margin trading as a catalyst for your trading performance. If not, you need to repay more than your initial borrowed capital.