How to use margin trading as a business model in a bitcoin trading website
In the previous blog we have understood about what is margin trading and its benefits, but now we are going to discuss about how margin trading followed as a business model in bitcoin exchange websites.
In general most of the trading website follows the two types of business models
Business model 1:
Admin of a bitcoin trading website voluntarily provide margin amount to eligible traders in order to increase the trading flow of the website. Also in this process, all the inactive traders are inducted to become active.
Business model 2:
Traders borrows margin fund from the admin of the website, in order to increase his trading capacity. Some websites give access for bitcoin lenders to lend bitcoin as a margin fund. It comes under the concept of margin trading With lending!
Business model 1: Traders are Inducted to do margin trading!
This process will work out for the trading websites, which has a less trading flow, with plenty of inactive traders. In order to increase the trading flow, admin sends margin fund to the eligible traders who have been inactive for a long time. how it actually works?
1 . Initially, the admin will check up the inactive traders and their trading account balance.
2. If the account balance comes under the eligibility criteria then admin will voluntarily send the request to the trader to do margin trading.
3. Traders have the rights to neglect or accept the deal. If he accepts the deal, then his margin account will be credited with "X' number of bitcoins.
4. Trader can use that bitcoins for a short period of time and must return that bitcoin at the final day.
5. If the trader forgets to trade with those bitcoins, admin of the website will do it on the final day. Either profit or loss it will affect the trader's account.
Business Model 2: Traders borrow bitcoins from admin or bitcoin lenders!
This is the common margin trading process which is followed by most of the bitcoin trading websites.
The main purpose of this process is to increase the trading capacity of a trader. (i.e) a trader can purchase a digital asset even if he don't have enough money.
Here the trader asks margin fund to the admin/bitcoin lenders and continues to do trading with received funds. After the completion of trading process he have to return those bitcoins.
(Note: if he borrowed the bitcoin from the lenders then he has to return it with interest.)
How can a trader make profit through margin trading when bitcoin price grow?
Let's say if a trader has 500$ on balance, and bitcoin price is about 1000$. He predicts that the bitcoin price will go up, so he wants to buy bitcoins now and make the profit buy sell them later.
So here he can open a long position with 1:2 leverage per BTC, (i.e) $ 500 on his own, and another $500 on margin fund.
He can close his position when the price meets $1400. The $500 which he borrowed is automatically returned. Finally, he will be benefited with $400.
What to do If bitcoin price goes down?
If bitcoin price is about $800, And the trader expects it will go down. He may get profit from selling borrowed bitcoins for $800 now and buying them back at less price.
A trader has $400 on his account and borrows 1 BTC by pledging his 400$ with 1:2 leverage ratio.He closes the position when bitcoin price meets $600, and the borrowed BTC will automatically return. Here the profit is 0.5 BTC.
Bitdeal now gives access to integrate margin trading with your bitcoin exchange website. Using the advanced bitcoin exchange software you can start doing your bitcoin exchange business along with margin trading.
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