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Margin Trading Meaning

The practice of using borrowed funds from a broker or exchange to trade a larger amount of an asset than you could afford with your own "cash" alone. The "Margin" is the collateral you provide to secure the loan.

Margin trading allows for "Leverage." If you have $1,000 and use 5x margin, you can buy $5,000 worth of Bitcoin. If Bitcoin goes up 10%, you make $500 (a 50% return on your $1,000).

However, if it goes down 10%, you lose $500, and you are much closer to being liquidated. This is a high-risk, high-reward strategy used primarily by experienced traders for "Short-term" gains.

It is also the mechanism that allows for Shorting (betting that a price will go down). Because you are "borrowing" the money, you must also pay "Interest" (Funding Fees) for as long as your position remains open.

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