Margin trading is the practice of borrowing funds [from a lender] to trade. This is a form of “leveraged trading” that provides traders access to more buying power than the balance of their Coinbase accounts by using certain assets (currently only BTC, USD, and USDC) as collateral for loans.
Example: You fund your Coinbase Pro account with $5,000 USD.
- Using margin trading, you place a $15,000 buy on BTC-USD.
- This allows you to engage in leveraged trading, where you leverage collateral to borrow funds and buy more than you could otherwise. Your “leverage” is the ratio of borrowed funds to the margin
- Let’s say your purchased BTC rises in value. If you decide to sell your BTC position for a 10% gain, your overall account balance will grow by 3x what it would have without margin.
- In this case, your trading results were amplified by margin trading
Margin trading goes both ways. If your collateral assets decrease in value, the lender may liquidate your assets in order to recoup loans made to you. If the market moved counter to your trade, causing this type of decline in value,you would lose more than you would have without margin trading.
Coinbase currently offers margin trading on Coinbase Pro for eligible customers. For more information on margin trading on Coinbase please visit our Margin Trading FAQ.