Why Do Retail Investors Choose Margin Trading?

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Margin trading is a hot topic across the retail investor space in crypto, stocks, and beyond. But what drives so much interest around the subject? Is it the thrill of the possibility of earning life-changing profits? Is it the ability to get more mileage out of one’s capital? Is it the ability to limit overall risk exposure? How about the opportunity to build hedge positions? The real answer is retail investors love the flexibility and control that margin trading platforms provide along with so many other reasons.

Rather than try to hone down the list to one single answer, we’re instead highlighting the abundance of reasons retail investors have to choose margin trading and why. Let’s take a look.

Dominate Both Market Directions

New retail investors tend to follow a similar trajectory when they first get into cryptocurrencies and other assets. After holding through a few drawdowns, investors can’t help but notice that if they had sold their assets at the peak of a trend, then bought the same assets back later at lows, profits could be multiplied significantly.

Trying to time the market this way isn’t very realistic, especially for newcomers who haven’t yet gained enough experience in markets or spent any worthwhile time with technical analysis tools. They aren’t able to understand at what point a trend might be at or if a turning point is near.

Investors aren’t stuck waiting only for uptrends to produce results with margin trading. Margin trading enables the ability for investors to “go long” or “go short” on various assets like Bitcoin, gold, or oil. This means that retail investors are no longer only losing money on the way down and have greater control over both directions of the market.

Hedge Against Historic Volatility

Another common strategy retail investors rely on that involves margin trading is called a “hedge” position. On your property or around your place of business, hedges are a protective boundary. In markets, a hedge is a defensive position that prevents loss and can even provide profits when the market moves against spot positions or other margin positions.

For example, a typical retail investor might hold Bitcoin and have targets to sell their coins closer to $100,000 or above. Rather than being stuck choosing between selling or losing money during the recent downturn back to $30,000, a short position would have protected the lost capital value and potentially produced profits depending on the position sizing.

Another situation could involve a trader who is short Bitcoin already from highs but is beginning to see signs that the trend might be reversing. Rather than close out what is an already profitable position, a long hedge trade could ensure no profits were left behind. Meanwhile, the stop-loss protection on the short position could be moved down to further secure any profit even if the market does turn around. All of these real-world examples and situations are only possible with margin trading.

Risk Less Capital, Make More Money


Earlier, we mentioned that profits are dependent on position sizing. This is true, no matter if it is a spot platform or a margin trading platform. However, with margin trading, the capital that is put on the line is much more effective, thanks to something called leverage.

Margin and leverage are often confused by novice retail investors. Margin is essentially the assets used as collateral to open positions using leverage. Leverage is a tool that multiplies the impact of any capital by a specified amount. Leverage ranges from a simple 3x to highly profitable and high-risk 200x and beyond.

Using 100x as an example, a retail investor can turn $1,000 into $100,000. This has two distinct benefits of reducing risk and increasing potential profits. Rather than putting $100,000 on the line, the retail investor is only risking $1,000 for the same size position, reducing overall risk exposure to capital. It also means that although only $1,000 is at risk, the position has the power of $100,000, and any profits will reflect the total leverage applied.

The Big Payoff

Understanding the power of leverage and margin trading fully, retail investors often can’t resist taking on substantial  risk to try and get the ever-elusive big payoff. Sometimes it works, and fairytale-like endings of making fortunes are left behind. Other times, these retail investors get in the hole, start revenge trading, and make it much worse, compounding losses.

To put things into perspective, buying a Bitcoin back at $10,000 and selling it at $60,000 would have resulted in a positive trade netting $50,000 less any fees or commissions. The same $10,000 in a BTC long at 100x leverage while Bitcoin was trading at $10,000 per coin, which was then closed at $60,000, would have instead made the trader around $5 million in profits. $10,000 is a lot to put on the line for a single trade, but when the reward is so significant, it is worth the risk to many for a chance at financial freedom.

Risks can be managed with stop-loss orders, hedge positions, and proper technical analysis skills. While the big payoff is always alluring, it should only be attempted with spare capital from profits or other earnings. Never risk more than you can comfortably afford to lose, and be certain to keep enough added margin in your account to prevent a margin call or liquidation. The big payoff doesn’t have to be quite so risky with those factors in mind.

Award-Winning Margin Trading Platform With PrimeXBT

The benefits of margin trading are clear, and it is easy to understand why retail investors flock to margin trading platforms over spot exchanges. Long and short positions, leverage, and all of the advanced trading tools mentioned above and then some are provided with a free PrimeXBT margin trading account.

PrimeXBT offers margin trading on more than 100 different trading instruments, ranging from crypto to commodities like oil and natural gas, to stock indices, and forex currencies from all over the globe. With total flexibility over positions and access to a massive portfolio of assets, retail investors get better risk potential and more opportunities for profit than anywhere else.

The award-winning margin trading platform also offers select cryptocurrency-based products and services like copy trading from Covesting, which allows novices to follow and copy the trades of more experienced strategy managers. All connected products and services are accessible from a single account from anywhere in the world via the PrimeXBT website or native smartphone app for iOS and Android devices.

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