By Alex Cavanagh on The CapitalOver the years, the cryptocurrency industry has progressively become more sophisticated, as it has grown, and become larger.One aspect of this, which is perhaps the most prominent is the introduction and widespread adoption of margin trading within the cryptocurrency industry today.Margin trading is without a doubt one of the most important tools for any professional cryptocurrency trader to understand and to have their arsenal, however there is also a lot about cryptocurrency margin trading that is widely misunderstood by a number of newer traders in particular.We’re going to be looking at what cryptocurrency actually is, and then taking a deeper look at what margin trading is, including the best places online to margin trade, a number of important margin trading strategies that can be used, and also the pros and cons of cryptocurrency margin trading.What is Cryptocurrency?What is the History of Crypto?Cryptocurrency was created and publicly released to the world in 2008 in the now-famous Bitcoin Whitepaper released by Satoshi Nakamoto to a small community of cryptography enthusiasts.Although today cryptocurrency is a multi-billion dollar industry that’s spread across all continents of the world, and that involves millions of people buying and selling cryptocurrency each and every day, originally the situation was much tamer.In the early stages of its life, Bitcoin was the only cryptocurrency in existence, and for many of those years, there were only a limited number of cryptocurrency trading platforms available in order to buy and sell Bitcoin.As time went on, stories of the almost unbelievable profits that were being made by cryptocurrency traders began to attract larger and larger groups of new users that wanted to learn more about Bitcoin and how they could make money from it as well.This fed a cycle of more users leading to increases in the purchase of Bitcoin, leading to increased profits, and then leading to more people hearing about Bitcoin, and in turn, joining the cryptocurrency industry.Over time cryptocurrency grew to a point where instead of there being just Bitcoin, there were hundreds and then thousands of different cryptocurrencies, and instead of there being only one or two main cryptocurrency exchanges, there are today hundreds of different places to trade Bitcoin and other cryptocurrencies.Those who invested in Bitcoin early on have reaped the rewards of the highest ROI of any financial asset possible in the last decade, while those that invest today in cryptocurrency enjoy a significantly reduced level of risk than the early adopters of Bitcoin had.What gives Cryptocurrencies their Value?Although it’s common to hear people talk about how Bitcoin is a risky asset to invest in because of the fact that it does not have any inherent value, this actually could not be further from the truth.Cryptocurrency’s value rests in its unique ability to provide solutions to a wide range of different people in ways that traditional payment processors and banks have not been able to previously.A good example of this is the crisis in Venezuela and the Venezuelan people’s ability to transfer their diminishing wealth from the hyper-inflated local currency into Bitcoin in order to protect the value of what they hold.This has also previously been seen in a similar event in Cyprus in 2013 where the financial crisis there led to a large amount of the population of that country investing into Bitcoin in order to preserve their wealth.As well as this, cryptocurrencies have provided a vehicle for a wide range of unpopular groups in countries that have authoritative governments to continue to be funded via cryptocurrency, which is either anonymous or pseudo-anonymous and not able to be censored or stopped by any government.The true value of cryptocurrencies lies in the benefits that have been provided through the creation of blockchain technology, with blockchain being truly revolutionary and solving some extremely complex financial and cryptographic problems that had previously not been possible.What is Blockchain?Blockchain is a fully-digital financial ledger system that was created by Satoshi Nakamoto in 2008 at the same time that he launched Bitcoin, and although cryptocurrency has been the main use case of blockchain, there are also a wide range of other non-monetary applications of blockchain.Since the 1990’s, cryptographers, financial anarchists, and computer scientists have tried to create different varieties of virtual currencies with limited or no success in each case.The overwhelmingly common reason for this was the centralisation of the system allowing governments and other nefarious actors to negatively impact the system or to shut it down.For example, if you have a digital currency in which the network is stored on a single server, then if the location of that server is known by a government, they can easily shut down the entire virtual currency by seizing the server or unplugging it.Nakamoto’s clever concept when he designed blockchain was for a decentralized system to be used, which means that currencies are stored on computers all around the world simultaneously instead of being stored on a single computer, and this prevents seizure or shut down by any government or other party.What is Margin Trading?Overview of Margin TradingMargin trading is the process of borrowing funds from a broker or other party in order to create trades which would typically not be possible, and that often leads to increased profitability in comparison to normal trades.Margin trading within the cryptocurrency industry used to be a relatively niche practice, however today, a majority of all cryptocurrency platforms provide margin trading services for their users.Margin trading cryptocurrency opens up new opportunities for generating profit and also allows for the creation of strategies that would not normally be possible without it.For example, without margin trading, the only way to generate profit from trading cryptocurrency is to buy low and sell high, and this restricts the time frame that profit can be generated to only 50% of the time.In comparison, with use of margin trading and more specifically shorting, the other 50% of the trend direction is then opened up in order for traders to be able to generate profit 24/7, instead of only when the price of assets is rising.While it does present new opportunities and high profitability, and at the same time, there are inherent risks in using margin trading, it must be properly understood and medicated prior to engaging in margin trading.What is Shorting?Shorting is the process of borrowing funds from a broker in order to create trades that would be profitable as the price of that drops, instead of rising, as is typical.Shorting is one of the more important tools that any trader should have at their disposal, being that without the use of shoring, traders are restricted in the kinds of strategies that they can create.Throughout the now infamous 2018 bear run, the ability to short assets throughout that year allowed many professional traders to generate huge profits, especially considering that on average altcoins came down roughly 90% or more over the course of the year.As an example of shorting in practice, a trader may think that the price of Ethereum is going to drop, and in order to monopolize on this and generate profit they can open a short position against it.They start by borrowing funds from a broker, and then selling that immediately, then waiting for the price of ethereum to drop to an acceptable level, and then purchasing the same amount of Ethereum and repaying the broker by keeping the change as profit.What is Leverage?Leverage is the other major form of margin trading available to cryptocurrency traders and while it has similarities to shorting, it is itself a completely different process altogether.The aim of leveraging is to create trades that will pay higher multiples on successful predictions than are normally possible.As an example of this, if I think that the price of Bitcoin is going to rise significantly, I could decide to open a long position with 50x leverage.What this word means is that for every $100 that I would normally make, I now make $5,000 instead, with the multiple that I select affecting not only the potential increase in profitability that I will experience but also the amount of collateral that I need to provide, known as the “margin.”Leverage has a reputation for being risky for newer traders especially, and this is true depending on whether or not the trader has a good understanding of risk management strategies.For engaging in any kind of leverage trading it’s important for traders to research ways to ensure that the risk is mitigated as much as possible, and these include things like adding stoplosses to any trades.Where are the Best Crypto Margin Trading Platforms?PrimeXBTPrimeXBT launched just over 2 years ago and in that space of time has gone from having a waiting list of over 500,000 traders during its launch, to now being one of the largest margin trading platforms on Earth, and managing up to $2 billion of global financial trade every day.PrimeXBT’s main strength has been the provision of high quality trading tools as well as unique functionality, but at a low cost to traders.Overall this has led to a combination which delivers an unprecedented level of value, and allows for one of the widest ranges of trading strategies to be implemented on any trading platform online.Traders enjoy fees of a flat rate of 0.05% on all trades irrespective of the size of the trade or the asset being traded, and as well as this PrimeXBT’s security is second to none with the platform never being hacked or breached by hackers throughout their 2 year lifespan.KrakenKraken is a cryptocurrency trading platform that has a focus on providing security, which has been a relief for any of their traders considering the risks involved with trading in the cryptocurrency industry over the years.Kraken was launched by two of the security analysts that work on the Mt. Gox collapse, and because of this, a wide number of advanced security features have been built into Kraken, enabling it to remain hack-free throughout its lifetime.Kraken has gone through a refurbishment of their user interface over the past few years, with the front end of the platform now looking much nicer than it used to.As well as this, upgrades to platform’s trading engine have led to widespread glitches that used to be present in the platform to have been mostly ironed out.What are the Best Ways to Use Crypto Margin Trading?Using Shorting to Hedge Long Trades.Hedging is an important risk management mechanism that is widely used throughout traditional trading such as forex and stock trading, but is less commonly considered by cryptocurrency retail traders, although it is important to mitigate risk.Hedging is the process of creating two diametrically-opposed trades in order to try to reduce the amount of risk of both of the trades losing in either direction overall.Both of the trades need to be balanced according to a carefully calculated formula, while adjusting the size of both trades as a situation changes, with the aim of reducing overall risk to as close to zero as possible.With the use of shortening, hedging is possible in that when a long trade is created, a short trade on the same asset in an opposing direction can also be created that can act as a hedge against a long position going in the wrong direction.This is perhaps one of the most useful applications of margin trading, with hedging being one of the more important forms of risk management for any professional trader to understand.Profitably Trading Flat Trends with LeverageAlthough it may seem as though there are two situations that a market can be in, either a bull market or a bear market, there are actually regular periods of trading where the price trades flat.Other periods of flat trading that are called consolidation occur following a particularly large move in either direction, and what distinguishes these periods from normal trending periods is the general complexity in being able to create profitable trades, and the increased increased risk as a result of quickly oscillating price movements over shorter periods of time.Many Traders choose to cease trading all together whenever flat trading periods start to form, waiting for a clear trend upwards or downwards to form before entering the market again.The problem with this is that with flat trading being so common, large periods of time are spent waiting for new trends to appear instead of generating profit.One application of margin trading that can mitigate this problem is to create trades using leverage during flat trends that in reality only move relatively small amounts up or down, but with high leverage will still generate profits that are comparable to normal upwards and downwards trends.By using margin trading in this way, professional traders are able to increase the amount of time that they can generate profit throughout a trading cycle.What are the Pros and Cons of Margin Trading Cryptocurrency?ProsThere are a number of advantages to using margin trading, but perhaps the most important of these is the ability to open up new trades and new opportunities that would normally not be possible.As an example, without the use of shoring, 50% of the trading period would not be profitably tradable, and without the use of leverage, flat-trading periods would often be too risky to get involved with.As well as the ability to open up new trades, another advantage of margin trading is that it is the most efficient way to use capital possible.If you are able to generate strategies which are reliably profitable, with the use of margin trading you can maximise the amount of profit that you generate, whereas without using margin trading you’ll be inefficiently using the capital which is being invested.ConsPerhaps the most obvious drawback to margin trading is the inherent risk in using leverage and having a leveraged trade move against a trader at a pace that is significantly more rapid than is typically possible without the use of margin trading.Some newer traders that are unprepared for this generate significant losses, however this can be mitigated against by first making sure that you are knowledgeable about the risks involved in margin trading, and then employing risk mitigation strategies.Traders should always use proper risk management to create a stoploss at a point where you would be willing for the price to move in the opposite direction.This will ensure that a rapid move in price will not get away from a trader, and will not lead to substantial losses or losses which are more than the trader is prepared to incur.In SummaryMargin trading is no longer a hardly-used, niche toolset that only those who have been involved in stocks and forex put to good use.Today shorting and leverage are commonly used throughout the cryptocurrency market, and for any traders that have not yet learnt about what margin trading is, it is important to do so because it can unlock profits that are not available otherwise.There are a large number of cryptocurrency trading platforms online in 2020, however many of these are either substandard in the services that they provide, or altogether untrustworthy.Because of this it is extremely important to select a reputable and high-quality margin trading platform with the platforms listed above being two of those that are some of the best in the industry.What is certain is that as time moves on, the currency market is only going to become more of a cryptocurrency margin trading market, with a larger percentage of daily globally crypto trade being handled using margin trading.The Capitalhttps://medium.com/media/3b6b127891c5c8711ad105e61d6cc81f/hrefThe Ultimate Guide to Crypto Shorting and Leverage for Beginners [2020] was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to 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