What Is Margin Trading? | Cryptocurrency Glossary

Margin Trading: Trading Large Amounts with a Small Investment

Margin trading is currently in the spotlight, not only in FX (foreign exchange margin trading), which is a current trend, but also in crypto asset (virtual currency) FX using Bitcoin and altcoins. It is a system where you deposit a predetermined
amount of margin funds based on the scale of your desired trades and conduct transactions within that limit; the underlying transactions are referred to as "margin trading."

Unlike spot trading in stocks, where funds are exchanged with each transaction, margin trading allows for continuous trading. Instead of settling each trade individually, the system only exchanges the profit or loss resulting from the trade at the final settlement.
For example, if you buy an asset for 100,000 yen and sell it for 150,000 yen, in a standard transaction you would pay 100,000 yen to buy and receive 150,000 yen upon sale. However, with margin trading, only the profit—in this case, 50,000 yen—is exchanged.

However, profits are not guaranteed; there is a possibility that an asset purchased for 100,000 yen could drop in value to 50,000 yen. Therefore, to ensure settlement even if a loss occurs, a certain amount of cash must be deposited in advance. This is called margin, and trading that requires margin is referred to as margin trading. The amount
of margin required varies depending on the exchange or brokerage firm used, but since it is typically less than the full transaction amount, the appeal lies in the ability to conduct large-scale trades even with limited available funds.