Coinbase Pro Adds Margin Service
Rejoice US Traders!
Margin services are now allowed within select US States. Here is a complete list for your review:
Hopefully your state is on the list, or you have Binance.US enabled otherwise. This is a great step forward for cryptocurrency trading within the US. The other instruments thus far have been largely banned from use. So, to help you prepare, we're going to cover everything you need to know:
What is Risk Without Reward?
Can't have one without the other! One thing that many traders fail to appreciate is that the higher the potential reward, the higher potential risk. You cannot fully separate the two. Margin trading is risky and is not for everyone. This is the most volatile market on earth and sporadic fluctuations are relatively common. Coinbase Pro allows both institutional and individual investors alike to both short and long the market.
The Debt Must Always be Paid
Margin has a very simple mechanism behind how it functions. You borrow USD from them backed by value in your account. Lets say you have $1000 of Bitcoin. This allows you to borrow up to $3000 in any currency. Lets start with the easiest one to understand:
1. Going Long:
You borrow USD and purchase Ethereum. Lets say you borrow $1000, it goes up 10%, and now you have 110% of the original value in Ethereum. You sell enough to pay back the original $1000, and keep the remaining value. You can keep it was ETH, or sell it back into USD.. or even Bitcoin!
2. Going Short:
Lets say you borrow one Bitcoin.. You sell it to the market for $10 000, and it proceeds to drop down to $9000. Since the price dropped 10%, you can buy back in and keep the $1000 for yourself. You return the one Bitcoin and the trade is settled.
The Specific Details:
- Each margin trade is a loan, and must be closed or extended within 25 days of opening.
- There are 23 different currencies which can be used as of right now.
- Coinbase charges an annualized rate of 8% when you use margin, including both open and filled orders.
- Interest is deducted from your loaded USD funds.
- The maximum margin allowed is 3x. This equates up to their $2 for every $1 you use.
- The collateral used for the margin loan must be retained during the trade, because it is backing the liquidity being used.
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You will get free BTC for doing so!