Coinbase announced that it would revive margin trading to help investors to get hefty profits in a short time. The largest cryptocurrency exchange in the U.S. wrote in a blog post that Margin had been one of their most requested features. So they strive to deliver it to their clients.
Coinbase’s venture was mainly due to the severe competition in the cryptocurrency market. As it grows rapidly, major companies are trying to attract customers and transaction volumes with the new features and digital-token listings. They scramble to offer the investors more leverage, advanced trading technology, and secure custody options.
To better understand how this works, here’s the example. If Investor puts down $1000 and borrows $2000 of bitcoin, then his bet would increase to $3000. In case of success, he would double his original investment. But if the price falls, then he would lose the whole amount. So, margin trading is very volatile, with much higher risks, then the usual trade.
According to Coinbase, its new “margin trading” feature grants leverage up to three times for individual investors in 23 U.S. states. Furthermore, the leverage is available to institutional traders in 44 states and nine countries. Another perk is that investors can use the borrowed funds to trade other cryptos, thus diversifying their portfolios. They can also use it to triple a single digital asset like bitcoin.
What about other companies?
There are several other major companies, which also offer their customers margin trading, but none of them are U.S.-based. Binance, Deribit, and BitMEX also provide leverage of 100 times or more on futures contracts and other derivatives. But most of those offerings are unavailable to American customers.
Meanwhile, Coinbase is one of a few big cryptocurrency exchanges based in the U.S., and it submits to the nation’s strict regulations in exchange for access to American customers.
Kraken, the second-biggest U.S. crypto exchange, also offers margin trading with up five times leverage, but contrary to Coinbase, the exchange isn’t licensed to operate in New York.