# What is margin in crypto spread betting and why is it important?

Margin is the amount of money you need to put down in order to place a leveraged trade. Use this handy guide to learn more about why margin is important in crypto spread betting.
By:
Updated: Aug 11, 2022

## What is leverage in crypto spread betting?

Leverage gives you the ability to make bets with more money than you have in your spread betting account. It can be likened to a loan, where you place down a certain amount as collateral, and your broker will lend you more money to place a larger bet. How much more money depends on the broker and the asset you’re betting on.

Leverage is usually quoted as a ratio. The first number will be how much you can borrow and the second will be 1 (the amount you need to put up to borrow the first number). In crypto spread betting the highest leverage you can usually obtain is 30:1. This means that for every £1 you have in your trading account, you can trade £30.

## What is the margin in crypto spread betting?

Margin is the amount of money that you need to deposit into your account to make a crypto spread bet trade. Where leverage is like a loan, margin is like the collateral you need to put up to obtain the loan. It’s always expressed as a percentage of the full amount of your trade.

Before you make a spread bet it is important to understand how much of your money you are putting at risk. This figure can be calculated following a simple formula.

Risk = bet size x price in points

If the price of Bitcoin is currently \$20,000 you would need to multiply it by your stake (the amount you want to bet per point). If your stake is \$5, your risk will be the following:

Risk = 5 x \$20,000

Risk = \$100,000

As you can see, to bet \$5 per point on the price of bitcoin would require you to deposit \$100,000 into your spread betting account. However, because spread betting is a leveraged product, you will only need to cover a fraction of the \$100,000 – the margin – and not the full amount.

As mentioned previously, margin is always expressed as a percentage and your spread betting broker will make it clear what is required. In cryptocurrency spread betting, it is usually around the 5% mark. You can work out exactly how much margin you need using the formula below.

Margin = margin requirement x total trade value

We can use the same figures from our previous calculation:

Margin = 5% x \$100,000

Margin = \$5000

Using the formula above, to trade \$5 a point in the Bitcoin market will require you to deposit \$5,000 into your account to cover the margin. Each time the price of Bitcoin moves up by one point, it will be worth \$5 to you. If its price goes from \$20,000 to \$21,000 you will make a profit of \$5000. It is the same if its price goes down, where you would lose money.

## Why is margin important in crypto spread betting?

Margin allows you to trade bigger positions than you have money in your account. It’s a way to magnify your gains (and losses). It is important because you are not required to fund your trading account with large sums of money. In spread betting, margin requirements are fairly low although there is a feature that some brokers use called tired margin.

Tiered margin is only really applicable to those who trade large amounts of money and requires  larger amounts of margin as your stake size increases. While margin has many advantages, it can be risky, especially if not used cautiously.

It is possible to receive a margin call which is when your broker will demand you deposit more money into your account. This happens when you have a spread bet trade open that is incurring a loss. One way to stop this from happening is by using guaranteed stop losses that are offered by many cryptocurrency spread betting brokers.

## Should I use spread betting in crypto?

You may want to consider using a spread betting broker to trade the crypto market if it’s available to you. Crypto trading is not available to retail clients in the United Kingdom, meaning spread betting is not an option for many. In parts of Europe such as Ireland, anyone can spread bet crypto, although the margin requirements are considerably high.

If you meet the requirements, then spread betting has many benefits compared to other types of derivative trading. If however you do not meet the criteria to crypto spread bet, other avenues such as CFDs, or trading via a crypto exchange may be more suitable.

## What should I do now?

If you’re ready to start trading then you will need a broker to spread bet on crypto. There are lots of brokers around and choosing one can be time consuming and confusing. Here on Invezz we have unbiased reviews for some of the top spread betting companies around to help you make a decision. You can also check out our dedicated cryptocurrency section on our website to learn more about the markets and other types of trading methods.