What is Margin Trading and How to Get Started in South Africa

Whether you’re looking for a quick recap, or you’re looking to dive into a new world of trading, this “what is margin trading” is sure to give you a better understanding of the intricate details of the profitable trading option. Better yet, we’ll also set you off in the right direction with the section on how to get started in South Africa. We know the hunt for side hustles is rife, so let’s get cracking and learn how to make a few extra bucks on the side.

What Is Margin Trading?
First let’s start with the basics, what is margin trading? Margin trading is essentially the opportunity to get more access to capital. When you margin trade, you are borrowing money from the platform that you are trading on, to leverage your trade. You will need capital to start, but if you were to leverage your trade by 10x for example, your $5 capital will be worth $50 when investing. Increasing your buying power, and therefore your profits, should the trade be successful.

Each platform differs, some brokers might offer a 1:1 ratio, while others might use a 3:4 ratio. It's worth determining what leverage ratio a broker is willing to offer you, and determine your personal risk:reward ratio too. There is also another factor to consider: the platform’s margin rate.

What Is a Margin Rate?
A platform’s margin rate refers to the interest the platform you are trading on charges on the “loan” amount. This margin rate remains intact whether you see profits or losses, so is an important element to consider when margin trading in general.

The Power of Margin Trading
Understanding the true power of margin trading is to understand the potential. If you were to invest $100 and make $10 profit, you’ve made a 10% return on investment. When margin trading, if you put down $100, leverage it at a 1:1 ratio, you enter the market with $200. On the same investment as the original example, you will now have made a 20% return, for doing the exact same trade. Margin trading allows traders to go about their usual trading practices only this time with more capital, and increased levels of profits. But with high rewards, come high risk.

What Happens If My Trade Is Unsuccessful?
With margin trading, it’s important to understand that both your profits and losses are magnified. Be sure you use strong trading strategies that are sure to limit your risks, while also going in with thorough research on the current market’s climate. Margin trading is at its most effective when the rate of return trumps that of the interest owed.

Should the markets turn and your investment plummets, the platform has a mechanism in place to catch you before things turn really south. This is called a margin call and kicks in when the amount of capital in your account reaches a predetermined limit. When this limit is hit, traders are either required to pay in more funds to boost the investment, or might be required to sell off a percentage of assets in order to get the investment above the maintenance margin.

Margin Trading Terminology
Here are a few terms you will come across when margin trading:
Minimum margin: initial investment needed to start margin trading (differs from platform to platform).
Margin rate: the interest required on the loan amount taken.
Initial margin: percentage of the assets purchase price you’d like to borrow.
Maintenance margin: minimum amount of funds required in your account before the margin call is reached.
Margin call: investor needs to boost funds through more capital or selling off assets.

What Is Crypto Margin Trading?
A popular new trend in margin trading is crypto margin trading. What is crypto margin trading, you ask? It’s essentially exactly the same as “traditional” margin trading, only this time with cryptocurrencies. As the cryptocurrency market has infiltrated many avenues of both financial and traditional worlds, it was only a matter of time before using margin to leverage crypto trading became a thing. Which leads us to our next point:

How To Start Crypto Margin Trading In South Africa
South Africans are always hungry for a side hustle, and we’ve got just the thing to satisfy your hunger: crypto margin trading. Below we’re going to show you a step by step guide on how to start crypto margin trading.

Step 1: Open an account on a reputable platform, we’ll use Snapex.com as an example.

Step 2: Complete Your KYC

Step 3: Make a Deposit

Step 4: Get Your Welcome bonus

Step 5: Start Trading

Crypto Margin Trade Your Way To Financial Freedom
In conclusion, when crypto margin trading, the trader is paying for a percentage of the digital asset, while the platform covers the rest. The trader can then make larger returns on investments due to the larger capital used to invest in the crypto market of their choice.