Exchanges and brokers provide traders with trading tools that allow them to increase potential profits, and one of these tools is margin trading.
In this article, you will learn what margin trading is, how it differs from spot trading, its pros and cons, and how to trade the futures pair ULTIMA/USDT on the MEXC exchange.
What Is Margin Trading?
Margin trading, also known as leveraged trading, is a type of trading where a trader borrows funds from an exchange or broker (some platforms also support P2P lending).
In this context, margin refers to the investor's own funds, which are provided to the platform as collateral. There are two types of margin:
- Initial margin – the starting amount required to open a new trade.
- Maintenance margin – the minimum required balance to keep an open trade active.
Thus, margin trading allows investors and traders to amplify potential profits, but it also increases the risk of significant losses.
How Is Margin Trading Different From Spot Trading?
The first difference between margin trading and spot trading is the trade execution principle. In spot trading, the trader buys and sells the actual asset. In futures trading, however, the trader does not own the asset itself but can only open long (buy) or short (sell) positions. This allows traders to profit from both rising and falling prices.
When opening a long position, the trader makes a profit only if the price of the underlying asset rises. In contrast, a short position profits only if the price falls.
Another difference is that futures trading uses borrowed funds, known as leverage. In simple terms, the trader borrows capital from the exchange and uses their own assets as collateral.
Leverage comes in two types:
- Isolated margin – when only the funds allocated for a specific trade are used as collateral.
- Cross margin – when all unused assets in the trader's account are used as collateral.
Profits and losses will be proportional to the leverage size. Most exchanges allow trading with leverage up to 100x, meaning traders can trade with 100 times their collateral amount. However, some exchanges offer leverage up to 500x or even 1000x.
Another feature of futures trading is the possibility of liquidation—a situation where losses reach the collateral amount. When using isolated leverage, the risk of liquidation is higher compared to the second type.
The higher the leverage, the greater the risk of liquidation. For example, if the leverage is 10x, the position will be liquidated if losses reach 10%, while with 100x leverage, liquidation occurs at just 1% loss. This is why beginners are advised not to use excessively high leverage in futures trading (no more than 10x).
However, when using cross margin, there is a risk of losing the entire deposit. If losses exceed available trading funds, the position is liquidated, and assets are deducted from the investor’s account.
Pros and Cons of Margin Trading
Pros:
- Ability to trade with a larger amount than the trader’s balance.
- Profit from both price increases and decreases.
- Suitable for hedging (opening opposite positions to cover losses).
- Ability to apply a broader range of strategies compared to spot trading.
Cons:
- Risk of losing all investor funds.
- Possibility of complete liquidation of collateral (margin call).
- Complex for beginners, who may make mistakes due to a lack of understanding of margin trading mechanics.
- Higher fees – the larger the trade amount, the higher the commission. For example, if a trader opens a $100 trade with 100x leverage, and the exchange charges a 0.1% fee, the fee will amount to 10% of the allocated capital.
- Increased stress due to higher risks.
- Regular monitoring and collateral adjustments are required to avoid margin calls, further increasing risks.
How Do You Open a Position for the ULTIMA/USDT Futures Pair on MEXC?
To open a position on MEXC, you must have a registered account on the exchange and fund your futures account. Futures trading on MEXC does not require identity verification.
You cannot deposit funds directly into the futures account. Instead, you first need to deposit USDT into your spot account and then transfer it to the futures account. If you deposit funds in other assets (such as BTC or ETH), you can first exchange them for USDT on the spot market and then transfer the required amount to your futures account. Once the funds have been transferred to your futures account, you will be able to open a margin position.
To open a futures position for ULTIMA/USDT, go to the "USDT-M Futures" page and search for the trading pair using the search bar or click on this link. By default, the "Open" tab will be active, allowing you to create a position.
Before opening a position, you need to adjust the leverage. By default, isolated leverage of 20x is set. With isolated leverage, the position will be forcibly closed if a margin call occurs, meaning losses reach the collateral amount. To avoid this, you need to increase the collateral. When using cross margin, other unused funds in the trader’s accounts will also be considered.
If you have little experience in margin trading, it is recommended to reduce the leverage to 10x or even 5x to minimize risks.
After setting the leverage, you need to choose the order type and enter the trade amount in the corresponding field. MEXC offers three types of orders for opening a position:
- Limit Order – The trader manually sets the buy/sell price.
- Market Order – The order is executed at the current market price.
- Trigger Order – The order with an additional condition that, once met, places a buy or sell order at the price specified by the trader.
You can also enable MTL by checking the corresponding box. In this case, if a market order is not fully filled when opening a position, the remaining portion will be placed as a limit order at the same price.
Additionally, traders can configure Take Profit (TP) to lock in gains and Stop Loss (SL) to limit losses on an open position. Both TP and SL levels can be set simultaneously. If the asset price reaches either of these levels, the position will be closed automatically.
To enable this feature, check the box for “Long TP/SL” or “Short TP/SL” and enter the desired price levels. Then click "Open Long" or "Open Short".
If Take Profit and Stop Loss levels are not set, you will need to monitor the position manually and close it yourself unless it is forcibly closed due to a margin call.
To close a position, go to the "Close" tab. You can close the position either fully or partially.
In this guide, we have demonstrated the features of margin trading. We hope that after reviewing this information, you understand how to trade the ULTIMA/USDT pair with margin.