As time passes and the technology continues to evolve, bitcoin users from all around the world are given numerous trading possibilities. Poloniex is one of the few digital currency-based firms that offers its users the ability to carry out lending and margin trading.
What is margin trading?
To put things into better perspective, margin trading can essentially be described as the practice of trading using borrowed funds, rather than your own. With this in mind, whenever a user places a margin trading order, the funds at stake are lent from other users, who engage in peer-to-peer (P2P) loans.
There are several benefits associated with the practice of margin trading. One of the biggest ones relates to the fact that the practice allows users to purchase more stock then they’d be able to without the funds. The limits associated with each account, alongside minimum purchases, deposits, and so on, depend on the broker being used. Loans can be kept for as long as users desire, but only if they fulfill their obligations. As margin trading can cause some issues in the long run, buying stocks on margin accounts is normally only done for short-term investments, from which users have the possibility to cash in large gains. However, the longer an investment is held by a trader, the greater the return to break even. Not only this, but it’s worth pointing out that the buying power of a normal margin account tends to change daily, based on the price movement associated with the margin-able securities stored in that account.
For those who are new to the practice of margin trading, there may be numerous concepts and terms that need to be defined. With this in mind, this article will cover everything you need to know about lending and margin trading at Poloniex.com.
After the addition of the margin trading feature, Poloniex decided to divide accounts into three separate categories, these being exchange, margin, and lending. The differences between these are quite clear. The exchange account holds funds normally used for regular trading and exchanging on the platform, the margin accounts holds the collateral which is then used to secure loans and settle debts once users engage in margin trading, whereas the lending account holds funds that users can lend to others in exchange for a commission. After depositing your funds on Poloniex, they’ll be sent to the exchange account, from there, you’ll have to transfer them over to the margin account.
Once this is done, users can simply go ahead and place buy or sell orders, with the borrowing process being handled automatically by the system. Given this, there are a couple of differences when compared to process of placing an order with your exchange account. First, two more windows named “tradable balance” and “loan rate” appear as fields in the buy/sell menu. To clarify, the tradable balance represents the current amount of funds that users have available for trading, whereas the loan rate allows customers to present the maximum daily interest rate that they are willing to pay for their order, in case it opens new loans. While the value of the tradable balance depends on a couple of factors such as market conditions, open positions and account balances, the sum written in the loan rate field can also be set as a higher value, when compared to the lowest rate offered, as loans will always be taken at the best available rate.
It’s worth pointing out that if you keep an order position open for two days or more, then the system will automatically allow higher loan rates to be adopted. Not only this, but when it comes down to margin trading, there are times when trigger orders alongside stop limit orders will trigger at a lower amount than the one originally specified, as the tradable balance tends to vary based on the evolution of the market.
What is lending?
In case you’re not interested in margin trading, but rather in offering loans and getting interest from this practice, then chances are you may want to try out the website’s lending feature. To access this page, simply click on the lending tab that should be displayed at the top of the page, and select the digital currency that you would like to loan out. Do keep in mind the fact that to loan funds, you’ll need to transfer them from your exchange account over to your lending account.
Once you’re ready, you can simply place your lending order. Once this is done, margin traders will start consuming the funds being offered, starting with the lowest rate being offered. If an even lower rate becomes available after the loan tab has been opened, then the contract may be transferred to that one, as a manner of ensuring favorable results for traders.
Chances are that you may already be aware of the fact that when your loans are being used by margin traders operating on the platform, the lenders will be earning interest, paid directly to the lending account upon the end of a contract. It is important to note the fact that Poloniex funds its operations by taking a 15% fee from the total interest rate.
Another great feature on lending accounts is the possibility to see all active loans, and enable/disable the auto-renew feature, thus making sure that the funds will return as soon as possible.
Based on everything that has been outlined so far, margin trading on Poloniex can be quite profitable as long as smart, short-term investments are made. The holder of a lending account can also bring in profit, which depends on the interest rates offered by other lenders on the market. All in all, Poloniex represents a great platform for digital currency enthusiasts to undertake trading activity, thanks to the large array of features currently being offered.