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Top 3 Most Popular Cryptocurrency Margin Trading Platforms in DeFi

Top 3 Most Popular Cryptocurrency Margin Trading Platforms in DeFi

Margin trading is extremely popular in the cryptocurrency markets. In the past, traders used to rely on centralized exchanges to trade using leverage. But recently, DApps that provide this kind of trading have become some of the most popular services in DeFi.

What is margin trading?

Margin trading is a method of trading using borrowed funds allowing you further leverage your existing assets. Margin trading comes with higher risks than normal trading. Because while it does offer the potential to amplify your gains, it can also amplify losses incurred through trading. In traditional finance, brokers typically provide the funds necessary to open a leveraged position. In DeFi, margin traders borrow cryptocurrencies from decentralized lending protocols powered by smart contracts. Lenders earn interest rates anywhere from 5-20% for lending their tokens to borrowers like margin traders.

How does it work?

When you open a margin trade, you select your desired amount of leverage and lock in funds (sometimes referred to as collateral) worth a portion of your total order, also known as your margin. Leverage in this case refers to ratio of borrowed assets to the value of your margin. For example, if you opened a margin trade with 3x leverage worth $3,000, you’d be required to lock in $1,000 worth of collateral.

Margin trading positions can either by long or short. Opening a long position means you believe that the price will go up. Whereas, opening a short position, also known as shorting, means you believe the price of the asset your trading will go down.

To new traders with little collateral, margin trading can be very appealing because it gives you access to more capital. However, you should be aware that trading with leverage multiplies your profits and your losses, meaning that you should never risk more than you’re willing to lose. If the value of your margin falls or the price does not go the way you predicted and your trade becomes over-leveraged, your margin trade can be liquidated and your collateral can be sold to repay the assets you borrowed plus interest.

Top Margin Trading Platforms in DeFi

DeFi margin trading platforms are built using smart contracts which enforce trading rules and facilitate the loans between lenders and borrowers, or rather margin traders in this case. When you margin trading cryptocurrency on any of these platforms, you will pay interest on any assets that you borrow. Potential leverage and borrowing interest rates vary from platform to platform. And, the interest you pay is subject to fluctuation depending on the platform’s available supply and demand for loans.

dYdX

dYdX is a non-custodial trading platform geared toward experienced traders which offers trades with up to 5x leverage on longs and 4x leverage on shorts. dYdX is the largest margin trading platform in DeFi with over $23 million worth of assets locked into its smart contracts. The following pairs are currently available to trade on dYdX: ETH-DAI, ETH-USDC, and DAI-USDC.

Fulcrum

Fulcrum is non-custodial margin trading platform built using the bZx protocol and Kyber Network. When you open a position, the smart contract takes out a loan from bZx on your behalf which is then swapped for the token you selected. Fulcrum allows you to long or short with up to 4x leverage and supports ETH, DAI, WBTC, LINK, ZRX, REP and KNC tokens.

Nuo Network

Nuo Network is the second largest margin trading platform in DeFi with $10.6 million worth of assets currently locked in its smart contracts. Using its debt reserves and Kyber Network to swap tokens, margin traders can open positions with up to x3 leverage. Traders can long or short ETH, WBTC, LINK, MKR, DAI, REP, ZRX, BAT, KNC, and USDT across four base pairs: USDC, DAI, WBTC, and ETH.

Remember, margin trading can be extremely risky. So be sure to use caution, never risk more than you’re willing to lose, and to do your own research!

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