Margin trading in crypto involves borrowing funds from an exchange and using it to make a trade. Margin trading is also referred to as trading with leverage because it involves traders “leveraging up” their trades beyond the existing capital they have to work with.
Margin trading crypto involves borrowing money in order to make larger or more trades. But an important factor to keep in mind is what’s called the liquidation price. When the market reaches the liquidation price, the exchange will automatically close a position. This is done so that traders only lose their own money and not the funds that were lent out to them.
When one is trading with only their own funds, the liquidation price for a long position on an asset is zero. But with increasing leverage, the liquidation price climbs closer to the price at which a trader buys.
It involves putting assets up as collateral to increase purchasing power.