What is crypto margin trading?
Crypto margin trading means borrowing extra funds to trade with more capital than you hold. In doing so, you can potentially increase your profits but also take on heightened risk. Exchanges or other market participants lend you the funds once you post collateral—often in the form of your existing digital assets. Should the market move against you, there’s a chance of forced liquidation if your trade loses enough value.
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Top three crypto margin trading platforms
Below are three standout platforms for margin trading crypto. Later in this guide, you’ll find five detailed reviews to compare fees, features, and more to choose the right one for your goals.
Binance
Best for diverse crypto margin trading options
How does crypto margin trading work?
Margin trading allows you to borrow capital and open positions larger than your own balance. Here’s a brief breakdown:
Long vs. short margin trading
Both approaches are possible with margin, letting traders capitalize on different market conditions.
Leverage ratios
A leverage ratio describes how much additional capital you can control relative to your own. For example, 10x leverage means a $1,000 deposit can move $10,000 in assets.
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Margin levels, calls, and liquidation
Your margin level signals if your trade is sufficiently collateralized. If losses push your margin below a certain point, you receive a margin call—an alert to deposit more funds. Failure to do so could result in forced liquidation, where your collateral is sold to cover the borrowed amount.
Isolated vs. cross-margin trading
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Isolated margin applies collateral to a single trade, preventing losses in one position from depleting your entire account.
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Cross margin pools collateral across all positions, which can help keep some trades open longer and puts more of your funds at risk if one trade goes bad.
Is margin trading better than regular trading?
Margin trading can magnify your gains but also increase the potential for bigger losses. It’s generally more suitable for traders who understand the market thoroughly and have reliable risk management strategies.
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Benefits and risks of crypto margin trading
Benefits
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Leverage amplifies profit potential.
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You can profit from both upward and downward price moves.
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Larger trades are possible with less initial capital.
Risks
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Greater possible losses if the market moves against you.
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Added complexity that can challenge newer traders.
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Ongoing interest costs on borrowed funds.
Fees for crypto margin trading
Typical expenses include:
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Trading fees: Often a percentage of each transaction.
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Interest rates: Applied to borrowed capital.
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Miscellaneous charges: These may involve withdrawal fees or inactivity fees, depending on the platform.
Choose a platform that clearly discloses its fees so you can compare costs accurately.
5 best platforms for crypto margin trading
Binance
Best for diverse crypto margin trading options
Binance is the largest crypto exchange by trading volume. It has a wide selection of coins, with margin trading pairs for numerous assets. Its fee structure is competitive.
– Pros & Cons
Pros
Cons
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Requires some learning for beginners
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Leverage limits can differ by coin
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Not available for margin trading in the US
– Why our experts picked it
Binance has a range of assets and favorable trading fees. Its features and high liquidity cater to many trading styles, which makes it a popular global choice for margin trades.
BitMEX
Best for cryptocurrency derivatives
BitMEX focuses on crypto derivatives with up to 100x leverage for seasoned traders. Known for an advanced trading engine, BitMEX provides sophisticated tools to manage risk.
– Why our experts picked it
Because BitMEX zeroes in on leveraged derivatives, it’s a top contender for traders who primarily want to speculate on futures and perpetual contracts. Its history and specialized focus make it a mainstay for advanced traders worldwide.
Bybit offfers up to 100x leverage on perpetual contracts. This is an environment geared toward derivatives. Its platform is relatively straightforward, and high liquidity often leads to fast trade executions.
– Pros & Cons
Pros
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Easy-to-navigate interface
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Generally strong liquidity
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Specializes in derivative products
Cons
– Why our experts picked it
Bybit brings a user-friendly layout with powerful leverage possibilities, which gives traders the chance to capitalize on price shifts with confidence.
Kraken
Best for diverse crypto options and futures
Kraken is well-established. It offers spot and futures trading with leverage. Its strong security record and a broad selection of supported cryptocurrencies make it a reliable choice, including for US-based margin traders.
– Why our experts picked it
Kraken’s mixture of strong security, extensive asset choices, and availability in multiple regions (including the United States) has kept it near the top of many traders’ lists.
Phemex is a newer exchange that has attracted attention through its zero-fee spot trading for premium members and up to 100x leverage on derivatives. Its uncluttered interface helps newer users, and the security setup includes cold storage to safeguard funds.
– Why our experts picked it
Phemex offers simplicity and cost-efficiency, which should appeal to anyone looking to reduce fees without sacrificing functionality. Its emphasis on straightforward trading flows is beneficial for both novices and intermediate traders.
Best tips for crypto margin trading and risk management
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Keep learning: The market moves fast, so it pays to follow industry news and trading insights.
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Start small: If you’re new to leverage, limit your position size until you understand the mechanics.
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Use clear risk parameters: Setting stop-loss orders and defining acceptable loss levels can shield you from sudden market swings.
Taxes on crypto margin trading
Depositing collateral alone does not typically generate a taxable event. However, any realized gains, losses, or fees may have tax implications. Key points include:
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Capital gains or losses: Report these on Form 8949 or the equivalent tax schedule.
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Forced liquidation: Even without proceeds, a liquidation can trigger a taxable gain or loss.
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Interest and fees: These may affect your overall cost basis.
Taxes on crypto margin lending
Users who lend funds to margin trading platforms earn interest on their deposit. This interest is taxed as income and reported on the Form 1040.
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Margin trading fee example
Brian borrows $10,000 to purchase 3 ETH at $3,333 each. He later sells them at $4,000 apiece, then repays the borrowed amount. After a $750 interest cost, his net gain is $1,250. That $1,250 is a taxable gain.
Taxes on crypto margin lending
When you lend crypto or cash for margin trading, your interest is treated as ordinary income and must be reported accordingly.
Margin trading income example
Katrina lends $10,000 worth of BTC and receives $600 in interest payments over time. She must declare that $600 as part of her income on her tax return.
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Taxes on crypto futures trading
Crypto futures trading offers possible tax advantages compared to spot trading, thanks to the IRS 60/40 rule for regulated futures contracts. Under this rule, 60% of futures gains are taxed as long-term capital gains, while 40% are taxed as short-term gains, regardless of how long the position was held. This can result in a lower tax liability compared to spot trading.
For traders in higher tax brackets, the 60/40 rule can be beneficial, as long-term capital gains rates are typically lower. Only those traded on regulated platforms qualify for this tax treatment. Understanding how futures trading is taxed can help traders optimize their strategies and manage their overall tax burden effectively.
Example of crypto futures trading taxation
Let’s say Emma is a crypto futures trader in the 35% tax bracket and reports $10,000 in profit from trading Bitcoin futures on a regulated exchange. Because these contracts qualify as Section 1256 contracts, the IRS applies the 60/40 rule for taxation:
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60% of her gains ($6,000) are taxed at the long-term capital gains rate of 20%
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40% of her gains ($4,000) are taxed at the short-term capital gains rate of 35%
Total tax liability: $1,200 + $1,400 = $2,600
If Emma had made the same $10,000 profit from regular crypto spot trading and held her assets for less than a year, the entire amount would be taxed at the short-term capital gains rate of 35%.
By trading regulated crypto futures instead of spot trading, Emma saves $900 in taxes due to the more favorable 60/40 split.
Crypto Margin Trading Methodology
How our crypto tax experts evaluated margin trading platforms