[2017-12-02]Buying Bitcoin On a Margin: Winning Big or Losing Your Shirt

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On November 29 there were quite a few bitcoin market spikes, and so-called flash crashes on exchanges, according to traders on social media and forums. One particular group of traders that really felt the storm when markets got turbulent were margin traders on exchanges like Bitfinex. In fact, if one were to visit the Reddit forum /r/bitfinex that day, they would see a whole bunch of angry customers who were burned buying bitcoin on a margin.

Buying Bitcoin On a Margin

Many people trade bitcoin on exchanges and understand how to place a buy or sell order and interact with the trading platform’s operations. However, there are other methods of exchange on cryptocurrency trading platforms and brokerage services called ‘margin trading.’ Buying on a margin is borrowing money from the exchange, so you can obtain a profit in the short term by placing a long or short bet on a specific digital asset with loaned capital.

Margin trading is far riskier than basic trading. Essentially, individuals with a limited amount of crypto-capital can add leverage to their base investment. For instance, if you hold two bitcoins the exchange allows you to open a margin position with leverage (loaned money) based on your initial capital. Exchanges like Bitfinex, Bitmex, Kraken, Bittrex, and Poloniex all offer these types of trades, and some of them allow other customers to provide the lending material. The risk a margin trader deals with is that they are gambling with loaned money and the market may not follow their predictions.

SOURCE: https://news.bitcoin.com/buying-bitcoin-on-a-margin-winning-big-or-losing-your-shirt/

[Samarkand]

.... Exchanges like Bitfinex, Bitmex, Kraken, Bittrex, and Poloniex all offer these types of trades, and some of them allow other customers to provide the lending material...
...

This is one of the innovations that BTC exchanges have created. No fiat broker allows you to lend out funds to other users for the purpose of margin trading.
The guys at Bitfinex and Poloniex (I´m not exactly sure, which of both exchanges had P2P margin funding before the other), who came up with this idea
are really bright. This has brought in a huge amount of users, which would otherwise have used alternative exchanges.

Let´s be realistic here. If a user is already lending out at one of the exchanges it is much more likely that he will conduct his trading at the same
exchange as well due to pure convenience.