What is margin trading?

Margin trading is a well-known strategy used across different asset classes – from stocks to crypto – to increase the size of your trades by borrowing funds. On Bitpanda, you can use this strategy for crypto trades, leveraging your own funds as collateral (called margin) to open larger positions.

This leveraged approach can unlock new opportunities for crypto traders to expand their strategies and potentially boost returns. But it also increases the risk of losses. Whether you’re an experienced trader or just starting to explore leverage, this guide breaks down how margin trading works, why it’s popular, and what you need to consider before opening a position.

• Margin trading is a strategy that uses borrowed funds to increase position size and trading power.

• It works by securing a loan from a broker using your own capital as collateral (margin).

• Traders use leverage to amplify potential gains — but losses are magnified as well.

• This approach suits experienced traders who understand market dynamics and apply strict risk management.

Margin Trading explained

In crypto, margin trading means borrowing funds to open positions larger than what your actual capital allows. To do this, you deposit collateral – typically crypto assets – into a margin position on a trading platform like Bitpanda. The size of your position is determined by your own funds (your margin) and the leverage you choose.

Leverage is expressed as a ratio– like 2x, 5x or 10x– and tells you how much bigger your trade becomes thanks to borrowing. For example, with 5x leverage, a €200 investment lets you open a €1,000 position. If the price goes up by 10%, you make a €100 profit. However, if the price drops by 10%, you lose €100, which is half your original investment.

While leverage lets you scale your position, it also increases your exposure. This means both profits and losses are amplified. In crypto, where prices can move rapidly, that can lead to quick wins,or quick liquidations. 

How does Margin Trading work?

Now that you know what margin trading is, let’s take a look at how it works. With margin trading, the trader deposits a portion of their own capital as collateral into a special margin position. The margin serves the broker as security for the borrowed funds. The amount of required margin depends on the chosen leverage, which defines the ratio between your capital and the position you control.

Example: With a leverage of 10x, a trader can control a position worth €10,000 by providing only €1,000 of their own capital. The trader borrows the remaining amount from a broker. During the trade, the broker continuously monitors the value of the position. If the value drops below a specified threshold – known as the maintenance margin – a margin call can occur, where the trader is asked to deposit more funds or close the position.

Understanding the leverage effect

At the heart of margin trading lies the leverage effect – the idea that borrowing funds can increase your return on equity. When used wisely, leverage helps you make more from smaller capital. But if your trade goes against you, losses can grow just as quickly.

The leverage effect is considered positive when your gains exceed the cost of borrowing. It's negative when the cost outweighs your return. This is especially relevant in crypto, where fees, interest rates and volatility all impact your results.

Want to see how the leverage effect really works – and how to calculate it for your own trades? Read our deep dive. 

Key margin requirements

Before you open a leveraged position, it’s important to understand the margin levels that keep your trade active and protect both you and the platform. 

Here’s what you need to know:

Initial margin

The initial margin is the collateral that a trader must provide to open a margin position. It is often expressed as a percentage of the total value of the traded position. The initial margin serves as a guarantee to the broker that the trader has enough equity to cover potential losses. Because crypto is volatile, margin requirements are often higher than in forex but lower than in traditional stock markets. 

Example: When trading stocks or securities, the initial margin might be 60% of the position’s value, while in forex trading, margin requirements can often be as low as 3% or less. In the case of cryptocurrencies, the initial margin is typically somewhere in between, depending on market volatility.

Due to leverage, the initial margin allows traders to trade larger positions while committing relatively little capital. However, the risk also increases, as losses can quickly exceed the original investment.

Maintenance margin

This is the minimum value, also called margin level. Here, your margin must maintain to keep your position open. If your trade moves against you and the margin falls below this level, you’ll face a margin call or automatic liquidation. 

A margin call is a warning you receive when your margin level drops close to the liquidation threshold, which is the point where your collateral may be sold to cover losses.

Costs to consider in margin trading

When trading with leverage, it’s not just your margin that matters – there are additional costs that can impact your returns. These are the main ones to consider:

• Buy fees: Charged when opening a leveraged trade. 

• Funding fees (or interest fees): Charged for holding a margin position open. Timing varies by platform – on Bitpanda, they accrue every 4 hours.

• Liquidation fees: Applied if your position is automatically closed due to insufficient margin.

• Closing fees: Taken when you manually exit a leveraged trade.

On Bitpanda, there is no buy fee when opening a position. You’ll pay a 0.3% closing fee when you close it, and a 1% fee if your position is liquidated. The funding fee is 0.03% every four hours, or 0.18% per day. 

Real example of leverage in crypto trading

Let’s take a closer look at how leverage works in practice, using Bitcoin (BTC) as an example.

• You deposit €1,000 and use 5x leverage, giving you control over a €5,000 BTC position.

• If Bitcoin’s price goes up by 10%, your position increases in value by €500. That’s a 50% return on your original investment.

• But if the price drops by 10%, you lose €500 – half your capital is gone.

That’s both the power and the risk of leverage. Your exposure grows fivefold, and so do your potential gains and losses. In fast-moving crypto markets, prices can shift quickly. That’s why managing your positions in real time is essential.

How to trade on margin with Bitpanda

Here’s a clear, step-by-step guide to help you trade on margin efficiently with Bitpanda:

• Top up your funds: Before opening a leveraged position, make sure your Bitpanda account is funded.

• Choose your asset: Head to the Leverage tab on the Bitpanda platform, select Margin, and pick the cryptocurrency you want to trade.

• Set your leverage: Choose a leverage level that suits your risk appetite. Remember: Higher leverage means higher potential returns, but also higher risk.

• Place your trade: Define the amount you want to trade and review the margin requirements shown before confirming.

• Use risk management tools: Risk tools aren’t optional – they’re essential. With Bitpanda Margin Trading* you can add or reduce exposure at any time to manage your position health and avoid liquidation. Features like real-time tracking and margin alerts help you stay informed and act quickly when the market moves.

• Manage your position: Easily visualise your open trades and add more collateral at any time to maintain or strengthen your position.

• Monitor your trade: Regularly check how your position develops and ensure you meet all margin requirements as the market moves.

Take your strategy further with Bitpanda Margin Trading

Once you’re comfortable with the basics, Bitpanda Margin Trading* gives you everything you need to trade with precision. Use up to 10x leverage across more than 100 cryptocurrencies, monitor your positions in real time and get alerts before liquidation. With Margin Limit Orders – including Take Profit and Stop Loss – coming soon, you’ll be able to lock in gains and manage risks with even more precision.

Pros and Cons of Margin Trading

Here are the most important advantages and disadvantages to consider before starting with margin trading:

Pros:

• Potential for higher profits through leverage

• Access to larger positions with lower capital investment

• Diversifying the portfolio without additional funds

• Possibility to speculate on both rising and falling prices

• Greater flexibility in fast-moving markets

Cons:

• Higher risk of losses exceeding your capital

• Margin calls and forced liquidations

• Additional fees for borrowing

• Requires active risk management and experience

Margin trading not only requires technical knowledge but also emotional discipline. The prospect of high profits can lead to excessive risk-taking, while losses caused by leverage often lead to impulsive decisions.

The emotional pressure of trading with leverage can lead to overconfidence or panic. Stick to your strategy and avoid impulse decisions.

Risks of margin trading 

Margin trading can increase your buying power, but it also raises the stakes. Because you’re trading with borrowed funds, even small price moves can have big consequences.

Example: If you invest €1,000 with 5x leverage, your position is worth €5,000. A 10% drop in price means a €500 loss – half your original investment gone. If the market keeps falling, your position may be liquidated, and you could lose everything.

Markets can move quickly and unpredictably, especially in high-volatility sectors like crypto, and even small shifts in price can wipe out your entire position. If prices move against you, you may be required to deposit additional funds on short notice or risk forced liquidation of your assets. In extreme cases, your losses may exceed your original investment. It’s essential to use leverage with caution, monitor your positions closely and apply strict risk management strategies from the start.

Unlike regular trading, margin trades come with the risk of losing more than your initial capital. Sudden market swings, low liquidity, or delayed reactions can quickly trigger margin calls or liquidations. That’s why margin trading is best suited for experienced traders who understand the mechanics and closely monitortheir exposure. 

Conclusion: Who is Margin Trading for?

Margin trading is particularly suitable for experienced traders who have a deep understanding of market mechanisms and are capable of managing risks effectively. It offers opportunities for high profits through leverage but requires solid knowledge of how markets like stocks, forex, or cryptocurrencies work. It is especially suited for investors willing to dedicate time to market analysis and use leverage strategically. A professional approach to volatility and a clearly defined risk management strategy are essential.

If you’re already confident in crypto trading and ready to explore more advanced strategies, Bitpanda Fusion gives you the tools to take your trading to the next level. With features like higher trading frequency, larger volumes, and real-time analytics, Bitpanda Fusion supports complex strategies commonly used in margin trading. You’ll also benefit from perks like zero transaction fees, instant upgrades, and top-tier security standards. Discover how our professional chart analysis tools can help you further improve your trading performance.

Trade with leverage on Bitpanda 

With Bitpanda, you can trade with borrowed capital across a growing range of leveraged products – directly on the Bitpanda platform. Whether you want full control over your trades or prefer a simpler approach, you’ll find tools designed to match your strategy.

Bitpanda Margin Trading* lets you trade more than 100 cryptocurrencies with up to 10x leverage. Go long, track your positions in real time and manage risk with ease. Liquidation alerts help you stay informed, and with Margin Limit Orders – including Take Profit and Stop Loss – on the way, you’ll soon have even more control to fine-tune your strategy.

If you prefer leveraged exposure without actively managing margin, Bitpanda Leverage also offers leveraged tokens. These track the daily performance of an asset at a fixed leverage level – like 2x long or short – and are ideal for short-term market moves. There’s no need to manage collateral or worry about liquidation, making them a straightforward way to access leverage.

Start exploring your leverage options with Bitpanda today and find the product that fits your strategy.

More questions about margin trading

Here are frequently asked questions and answers about margin trading:

What is a margin call?

A margin call occurs when the capital in a margin account falls below the required maintenance margin. The broker requests the trader to deposit more funds or close positions to offset losses and secure the account.

How safe is margin trading?

Margin trading is relatively risky compared to other methods because losses can quickly exceed the invested capital. Safety depends on the trader’s experience, leverage choice, and effective risk management, including stop-loss orders and regular position monitoring.

What is a maintenance margin?

The maintenance margin is the minimum amount that must remain in a margin account to keep positions open. If the account drops below this value, the broker can trigger a margin call to secure additional funds.

What does margin closeout mean in trading?

Margin closeout refers to the automatic closing of positions by the broker when the margin account falls below the required maintenance margin. This protects the broker from further losses if the trader fails to deposit more funds in time.

What is the difference between margin and leverage?

Margin is the collateral a trader must deposit in their account to open and maintain a leveraged position, while leverage refers to the ratio between the trader’s margin and the total value of the position they control. Leverage multiplies both profit and loss potential.

More topics around trading

Want to learn more about how to use margin trading effectively and manage risks better? In the Bitpanda Academy, you'll find a wide range of guides and tutorials that explain not only the basics of investing and trading but also delve into topics like cryptocurrencies, stock trading, blockchain technology, and various trading strategies.

• What is Spot Trading?

• Limit Orders

• What is Volume Trading?

Disclaimer 

Bitpanda Leverage is brought to you by Bitpanda Financial Services (AT company registration no. FN551181k). L-Token-Long allows you to invest in increasing market prices of selected crypto assets by entering into a contract for differences (CFDs) with Bitpanda GmbH (AT company registration no. FN 569240 v). L-Token-Short allows you to invest in expected falling market prices of crypto assets by entering into CFDs. CFDs are financial instruments of which the value is derived from the price of crypto assets as the underlying. This price is quoted in EUR on Bitpanda. If your selected default currency or the currency of your trade is different to EUR, your final return will also depend on the exchange rate between EUR and your chosen currency. Section 5 of the Investor Information Document (available at bitpanda.com) provides you with more information on the risks associated with Bitpanda Leverage. Relatively small market movement has a proportionally larger impact on your position: this can work both for you and against you. Before you decide to invest, you should carefully consider your investment objectives, experience, financial resources and willingness to take risks.

*Margin trading involves borrowing crypto assets to amplify potential gains and losses. Even small market fluctuations can lead to margin calls or automatic liquidation, potentially resulting in the loss of your entire capital. Borrowing fees accrue every 4 hours and adversely affect your margin level. Margin trading is suitable for experienced traders only. Ensure you understand the risks and can bear substantial or total financial loss. Never trade with money you cannot afford to lose.